REV Group Inc

NYSE:REVG

Earnings Call Transcript 2024-Q2

[Operator]

Greetings. Welcome to REV Group Inc. Fiscal Second Quarter 2024 Earnings Conference Call. A question-and-answer session will follow the formal presentation.

[Operator Instructions]

Note this conference is being recorded. I will now turn the conference over to Drew Konop, Vice President, Investor Relations.

[Drew Konop, executive]

Good morning, and thanks for joining us. Earlier today, we issued our second quarter fiscal 2024 results. A copy of the release is available on our website at investors.revgroup.com.

Today's call is being webcast and a slide presentation, which includes a reconciliation of non-GAAP to GAAP financial measures is available on our website. Please refer now to Slide 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've described in our Form 8-K filed today and other filings that we make with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all.

All references on this call to a quarter or year are to our fiscal quarter or fiscal year, unless otherwise stated. Joining me on the call today is our President and CEO, Mark Skonieczny; as well as our CFO, Amy Campbell.

Please turn now to Slide 3, and I'll turn the call over to Mark.

[Mark Skonieczny, executive]

Good morning to everyone joining us on today's call. Today, I will provide an overview of the commercial operating and strategic highlights achieved within the quarter, then move to the quarter's financial performance.

Before I begin, I am pleased to introduce Amy Campbell as CFO, and welcome her to the REV team. As you know, this role remained unbilled for many months as we search for the right person and had the appropriate mix of financial and operational experience to lead the finance organization as well as contribute to the advancement of the operating agenda in the business.

Amy is an experienced a highly effective finance executive. She had a 23-year tenure with Caterpillar, which included several divisional CFO roles, Vice President, Investor Relations and Chief [ Audit ] Officer. Prior to REV Group, she served as CFO of ASC Engineering Solutions and CFO for Brand [ Safeway's ] Commercial Industrial division. I am thrilled she's joining our leadership team and look forward to the positive impact that she will bring to REV.

Now turning to the other highlights within the quarter. we are pleased to have delivered another strong quarter of operating results and remain focused on enacting initiatives that drive throughput and efficiency improvements across our manufacturing sites.

I would like to thank all the dedicated employees that have worked to build operational momentum and improve financial performance. Within the second quarter, this was exemplified by a Fire & Emergency team. With strong backlog that extend up to 2.5 years, these businesses have the visibility and opportunity to drive significant shareholder value.

Throughput initiatives put in place over the past 18 months are taking hold with increased line rates and improved labor efficiencies, resulting in higher unit shipments and price realization as we work through our backlog. The results of these efforts were a 5.5-year quarterly high in adjusted EBITDA margin in the legacy Fire & Emergency business, margins improved 320 basis points versus the prior quarter and 480 basis points versus the prior year, demonstrating that each unit shipped today is worth more than the unit shipped previously.

We exited the quarter with a robust $4.3 billion backlog. We continue to experience strong order intake for fire apparatus and ambulance with a combined quarterly unit book-to-bill ratio of 1.1x, slightly ahead of our full year expectation of a 1:1 ratio.

Price actions and the higher mix of fire apparatus resulted in a revenue book-to-bill ratio of 1.6x within the quarter. We attribute the sustained level of demand to the quality of our products, municipal budgets backed by increased tax receipts [ in ] federal stimulus, ongoing replacement demand and emergency infrastructure build-out related to population growth and urban sprawl.

To meet the unprecedented demand and maximize return on the backlog, we remain focused on increasing production, advancing the development of centers of excellence, optimizing our manufacturing footprint and product simplification. An example of our success is the integration of the [ Spartan ] businesses that were acquired in 2020.

Over the past 4 years, the [ Spartan ] chassis plant has doubled its production to meet sister plants and other OEM demand. We have also expanded the [ Spartan ] S-180 program, which provides a fire apparatus that can be delivered in as little as 180 days.

Today, we offer this program across several brands, providing more customers and dealers the opportunity to purchase a semi-custom truck delivered within shortened lead time. This is a competitive advantage as supporting increased order intake for the REV fire brands.

Within the Recreational Vehicle segment, overall industry demand for motorized RVs, which accounts for more than 90% of our RV segment remains depressed. Based on recent industry data, new motorized wholesale unit shipments calendar year-to-date through April were down 22% year-over-year.

We believe that higher interest rates and negative equity trade-in value for units purchased during COVID continued to impact consumer buying decisions. However, industry retail sales of aged inventory and the destocking that has occurred over the past year indicates that the health of dealer inventories is improving heading into [indiscernible] 25 introductions.

Specific to the products and channels in which we participate, year-to-date [ model ] year 25 orders have been softer than we anticipated as dealers have been to place new orders given increased [ floor plan ] costs and market uncertainty.

Despite the industry backdrop and reduced 25 [indiscernible] year orders, we exited the quarter with a healthy 5 to 6-month backlog at current production rates with our Class B and C businesses while our Class A and total businesses remain at postcode low levels of backlog.

As we enter the back half of our fiscal year, we remain confident in our ability to deliver on our existing Class B and C backlogs and maintain flexibility to manage costs across all product categories in response to market dynamics.

We continue to simplify the operational footprint of our businesses, focusing resources [indiscernible] core businesses. In support of this strategy, within the quarter, we exited our direct fire and ambulance sales and customer service operation in Florida with the sale of the Fire Regional Technical Center, or RTC in [ Ocala ].

We selected an experienced partner that has represented REV Fire brands for over a decade as the purchaser of the business and believe they will continue to capitalize on the significant opportunity presented within the Florida market. With the sale of the RTC, we have no remaining company-owned dealerships within our fire business. In addition, the wind down of our E&C municipal transit bus business remains on track.

I would like to acknowledge the efforts of the team at E&C as well as our suppliers and channel partners who have remained committed to completing units within our backlog on schedule. We expect the line [indiscernible] instantly all manufacturing operations to be completed in the fourth fiscal quarter. Within the quarter, we returned a total of 308.5 million shareholders in the form of share repurchases and regular and special dividends.

As a reminder, the [ Collins Bus ] transaction closed at the end of first quarter, providing cash proceeds of 308 million, a portion of which was used to pay down our ABL credit facility to 0 at the end of the first quarter. In the second quarter, we returned essentially all the proceeds to shareholders.

Approximately $179 million was used to pay a $3 special dividend in addition to our regular quarterly dividend. The remainder of the proceeds from the sale of Collins was used to participate in a secondary offering of our then largest shareholder, AIP, by purchasing $8 million of Rev Group common shares for approximately $126 million.

The secondary offering reduced the shareholders' ownership interest to approximately 19%. In March, that shareholder proceeded with a subsequent underwritten secondary offering of 7.4 million shares reducing its ownership stake to approximately 3.4%, well below the 15% threshold that allowed us to designate Board members.

On March 15, the IP designated directors stepped down from our Board. We have been preparing for the potential exit of these Board members over the past several quarters. While the timing was uncertain to us, we felt it was important to identify and recruit new Board candidates who could add value to the company and help guide us in the next chapter of our growth.

In August 2023, we welcomed Maureen O'Connell to our board, replacing a long-term AIP designated director. That in January of this year, anticipation of the retirement of Board member and Annual Shareholder Meeting in February, Kathleen Steele was appointed to the Board. Finally, last week, Cindy Augustine was appointed to the Board. She currently serves as the Global Chief Talent Officer of [ McCann ] World Group and has extensive experience as an HR and operating executive at leading public and private companies.

REV will benefit from the wide ranging and diverse set of experiences provided by our refreshed board, and we look forward to the contributions the Board will offer as we continue to execute our strategic agenda.

Turning to Slide 4. Consolidated net sales of $617 million decreased $64 million compared to the second quarter last year. In the prior year, reported net sales included $47 million attributable to [ Collins Bus ] which was divested in the first quarter of this year.

Adjusting for the sales impact of Collins, net sales decreased $17 million or 2.7% due to lower sales in the recreational vehicle segment that was in line with expectations and fewer sales of terminal trucks, partially offset by increased sales in the Fire & Emergency businesses.

As I mentioned earlier, Recreational Vehicle segment sales reflected soft industry demand as well as increased discounting and a mix of lower-priced units within certain businesses. Terminal truck sales were 59% lower than previous year, which was consistent with the expectation in the 2024 guidance we provided in December.

Increased Fire & Emergency sales benefited from year-over-year units and revenue increase in all [indiscernible] and fire apparatus manufacturing locations. Consolidated adjusted EBITDA of $37.5 million decreased $4.4 million compared to the second quarter of last year.

Included in the prior year reported adjusted EBITDA was $10.2 million attributable to Collins Bus resulting in an increase of $5.8 million or 18.3% when addressing for the divestiture. The increase was driven by the fire emergency and municipal transit bus businesses, partially offset by lower earnings in the terminal trucks business and recreational vehicle segments.

Fire & Emergency results benefited from higher volumes the operational improvements mentioned earlier and increased price realization as we ship more units that benefited from pricing actions enacted in '22 and '23. We remain encouraged by the efforts of the teams to offset costs through operational improvements, allowing businesses to maximize the pricing opportunity within backlog.

Please turn to Slide 5, and I'll turn the call over to Amy for detailed segment financials.

[Amy Campbell, executive]

I know many of you on the call for my previous role at [ Caterpillar ] and look forward to working together at REV Group. This being my first call, I thought I'd begin on a few opening comments, considering joining REV Group, I [indiscernible] the great work this company does in support of our nation's first responders and the communities in which we live.

Over the past several weeks, I've traveled to many of our business units, spent time with local management teams as well as the corporate staff to gain insight into our products, channel partners and ability to increase profitability, generate cash and drive shareholder value.

My interactions have validated what I saw from the outside. There is a significant value creation opportunity for our shareholders as we continue our journey to improved execution that has resulted in the company delivering top line and bottom line momentum over the past several quarters.

I believe there is significant opportunity to continue this progress and build upon our 2021 Investor Day financial targets, which we plan to refresh before the end of the year.

Now let's move to Page 5. The [ Specialty ] Vehicles second quarter results, segment sales were $437.4 million an increase of 2.9% compared to the prior year. As Mark mentioned, the prior year quarter included $47 million of net sales attributed to Collins bus, which was divested in the first quarter of this year.

Adjusting for the sales impact of Collins, segment sales increased $59 million or 16% year-over-year. The increase in net sales was primarily due to higher shipments of fire apparatus and ambulance units along with favorable price realization, partially offset by lower sales in the terminal trucks business.

Shipments of legacy fire and emergency units increased 18% versus the prior year period, reflecting the success and continued momentum of the operational improvement initiatives that have been put in place and our delivering increased throughput.

Combined net sales of fire apparatus and ambulances increased 33%, which included favorable product mix and price realization as we shipped a greater number of units benefiting from price actions taken in 2022 and 2023. The higher fire apparatus shipments were led by our largest plant in [ Ocala ], Florida.

This location is better described as a campus with 10 buildings over 4 square miles. The campus has benefited from a focus on simplification and reorganization to focus on manufacturing by value stream. These changes led to better alignment across the local teams that resulted in improved efficiencies, quality and throughput, along with better supply chain management.

Their commitment to operational excellence contributed to them delivering the highest quarterly total of unit shipments since 2020. Within [indiscernible] higher unit volumes also demonstrate the continued success of that division and their local OpEx and lean teams that have delivered a cadence of measured production ramp rate throughout the past year.

[ Specialty ] Vehicles segment adjusted EBITDA was $33.8 million in the second quarter of 2024, an increase of $13.5 million compared to $20.3 million in the second quarter of 2023. Adjusting for $10.2 million of adjusted EBITDA attributed to Collins Bus in the prior year, second quarter earnings increased $23.7 million year-over-year or 235%.

The increase in adjusted EBITDA was primarily due to increased contributions from the fire ambulance and municipal transit bus businesses, partially offset by lower earnings from the terminal trucks business.

As Mark previously noted, legacy Fire & Emergency margins improved 480 basis points versus the prior year. The increased contribution was primarily related to price realization, higher unit volumes and favorable mix.

Within the Ambulance group, performance marked a 7-year high in quarterly profitability with all businesses delivering year-over-year and sequential margin improvement. Segment backlog of $4.1 billion increased $706 million or 21%. Prior year backlog of $3.4 billion included $353 million of backlog attributed to the bus businesses.

Adjusting for the divestiture of Collins, backlog increased $898 million or 28% versus the prior year quarter. The increase reflects strong orders for fired ambulance units over the past year as well as the benefits of pricing actions, partially offset by lower demand for terminal trucks and a reduction in transit bus business backlog related to the business' wind-down.

Today's update to the consolidated outlook anticipates continued fire and emergency earnings momentum, partially offset by continued end market softness in the terminal trucks business and the completion of the wind down of E&C municipal transit bus operations in the fiscal fourth quarter.

Lower-than-expected terminal truck orders is now expected to result in a $150 million revenue headwind year-over-year versus a $100 million headwind in previous guidance. We continue to execute cost actions to manage to a 15% decremental margin.

More than offsetting the revenue headwinds from transit bus and terminal truck businesses, we expect the Fire & Emergency businesses to build upon the second quarter outperformance, resulting in Specialty Vehicles segment revenue increasing by low single digits as compared to first half revenue.

Improved profitability with the Fire & Emergency businesses is expected to result in legacy F&E adjusted EBITDA margins in the low double digits exiting the fiscal year. F&E performance is expected to more than offset softness in the terminal truck end market, resulting in the Specialty Vehicles segment margin, increasing sequentially in the third and fourth quarters as we continue to focus on operational excellence and achieve improved pricing within the backlog, delivering total segment adjusted EBITDA margin in the high single digits exiting the fourth quarter.

On Slide 6, Recreational Vehicles segment results were in line with expectations. Sales of $179.7 million decreased $76.9 million or 30% year-over-year. Lower segment sales versus the prior year were primarily the result of fewer unit shipments of Class A, Class B and [ towable ] units, along with increased discounting which was partially offset by increased shipments of Class C units and price realization.

In total, unit shipments declined 43% versus a year ago, driven by a 70% decline in [ towable ] and [ Camper ] unit sales. Recreation segment adjusted EBITDA of $12.1 million decreased $17 million or 58% versus the prior year. The decrease in adjusted EBITDA was primarily the result of lower unit volumes, inflationary pressures and increased discounting, partially offset by price realization, labor efficiencies, material savings, and cost reduction actions that were executed in certain businesses to align production with the current level of demand.

Recreation segment backlog of $275 million at quarter end decreased $220 million or 45% versus the prior year. The decrease is primarily due to production against backlog lower order intake over the trailing 12 months and order cancellations.

Backlog in the Class B and Class B category remains in the range of 5 to 6 months and profitability of the combined Class B and C businesses is expected to remain in the low double-digit range. The Class A and total businesses are expected to produce at lower line rates aligned with in market demand.

To the extent that the Class A and total market doesn't improve in the second half of the year, we will continue to execute cost actions aligned with demand. Our update to the consolidated outlook now anticipates the Recreational Vehicles segment revenue to be at the second quarter run rate for the remainder of the year. We're down 20% to 25% year-over-year compared to down low double digits in our prior guidance.

Lower discounting and the impact of cost actions is expected to improve the second half adjusted EBITDA margin, approximately 100 basis points as compared to the second quarter. Full year segment margin is expected to be in the 7% to 7.5% versus high single digits under prior guidance.

Turning to Slide 7. Trade working capital on April 30, 2024, was $324 million, an increase of $5.5 million compared to $319 million at the end of fiscal 2023. The Increase was primarily a result of lower accounts payable and customer advances, partially offset by a decrease in accounts receivable and inventory.

Year-to-date cash used by operating activities was $29.6 million. Adjusted free cash flow within the quarter was $67.2 million, including $5.9 million spent on capital expenditures. Net debt as of April 30 was $181.8 million, including $38.2 million of cash on hand compared to net debt of $128.7 million as of October 31, 2023.

As Mark noted earlier, we returned essentially all of the $308 million gross proceeds from the sale of Collins Bus to shareholders within the second quarter. On February 16, we paid a special cash dividend of $3 per share of common stock, totaling $179 million, in addition to our regular quarterly dividend.

Then on February 20, we repurchased 8 million common shares for a total of $126 million, reducing total outstanding shares versus 2023 fiscal year-end by 13%. In addition, we declared a regular quarterly cash dividend of $0.05 per share payable on July 12 to shareholders of record on June 28. At quarter's end, the company maintained ample liquidity for strategic initiatives to approximately $280 million available under our ABL revolving credit facility.

Turning to Slide 8, we provide our updated 2024 fiscal full year outlook, which builds upon the momentum within the Specialty Vehicles segment, partially offset by greater-than-expected end market weakness the Recreational Vehicles segment.

Today's update for top line guidance is a range of $2.4 billion to $2.5 billion, and adjusted EBITDA guidance of $151 million to $165 million or $158 million at the midpoint, which reflects an improvement of $6 million at the low end of the range to account for the second quarter performance.

The update to guidance today includes an approximate $150 million total revenue reduction within the cyclical terminal truck and RV businesses and its resulting earnings impact as we manage to a 15% decremental margin. However, we expect that the performance of the Fire & Emergency businesses will more than offset these headwinds, which provides the confidence to raise the midpoint of our full year consolidated earnings outlook.

Adjusted net income is expected to be in the range of $76 million to $90 million and net income in the range of $230 million to $245 million. Adjusted free cash flow is expected to be in the range of $61 million to $72 million. Note that the adjusted free cash flow excludes approximately $71 million of tax and transaction costs related divestiture activities that are presented within the cash from operations but offset by gross cash proceeds included in the investing section of the statement of cash flow.

Expected full year capital expenditures remain in the range of $30 million to $35 million and interest expense is expected to be $26 million to $28 million. Thank you again for joining us today on the call. Operator, we would now like to open the call up for questions.

[Operator]

[Operator Instructions]

Our first question is from Jerry Revich with Goldman Sachs.

[Jerry Revich, analyst]

This is [ Clay Williams ] on for Jerry. In Fire & Emergency, how much was pricing up in the quarter? And then how much higher is pricing on we're booking today versus where you're booking today compared to what you're delivering?

[Amy Campbell, executive]

So I think one way to think about that, if you look at fire & emergency, sales, total sales were up 33% and units were up 18%. And I would say the delta of that is pretty evenly split between price and favorable mix in the quarter. And then if you think about how the units we're shipping today are [ versus ] the price today, I think at the setback and look at the price increases we've taken over the last couple of years.

Over the last few years, we've got a combined pricing increases of 40% through about midyear 2023 when we started to take more normalized annual increases of 3% to 4% and fire, we're about in the third to fourth inning working through those price increases. And in Ambulance, we're about in the fifth or sixth inning as we work through those price increases.

[Jerry Revich, analyst]

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

[Amy Campbell, executive]

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

[Jerry Revich, analyst]

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

[Amy Campbell, executive]

Starting with Specialty Vehicle margins. We expect third quarter EBITDA margins to increase 50 to 100 basis points from the second quarter to the third quarter, and then about another 100 bps from the third quarter to the fourth quarter, and recreation EBITDA margin should be fairly consistent, 7% to 7.5% for the full year.

[Jerry Revich, analyst]

Yes, so I think just check your -- sequentially, we're actually up as well.

[Operator]

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

[Michael Shlisky, analyst]

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

[Mark Skonieczny, executive]

Yes. I think [indiscernible]. We're not going to provide 25 and again the market feel choppy now. So we have to see what's going to happen in the back half of the year, which I think everyone is talking from an industry perspective. So I think to give anything from a 25 until we see what happened in the back half of the year wouldn't be appropriate at this time.

[Michael Shlisky, analyst]

Perhaps I can just turn it over to Fire & Emergency. You had mentioned some interest in the [ Spartan ] S-180. At this point, how successful have you been with delivering that product in 10 days every time? And can customers now -- I know there's been some [indiscernible] with the supply chain over the last couple of quarters. Are you at the point now where you can put the [indiscernible] and deliver within 6 months.

[Mark Skonieczny, executive]

Yes, for sure. And the way we've done that, we've actually -- we have a dedicated buying in 1 of our facilities Mike that is doing that. So we've invested in that product line as well as having a dedicated line within 1 of our facilities. So that is within the -- we are meeting those lead times.

[Michael Shlisky, analyst]

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

[Mark Skonieczny, executive]

Yes. We're not that far off. But again, like we talked about, fire is still 6 to 9 months behind where [indiscernible] is and we expect in the back half. A lot of the guidance that we're talking about today is still the continued momentum in fire and catching up to the Ambulance throughput improvement.

So I would just say from that perspective, it's again, how we're going to demonstrate that in the back half of the year. But we feel good about the momentum of where we're at. And we've quoted obviously from pre-COVID, we've doubled our throughput at the [ Spartan ]. So when you look at our overall, we're up actually the pre-COVID levels when you can include the [indiscernible] facilities, what they've been able to do.

[Amy Campbell, executive]

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

[Operator]

Our next question is from Mircea Dobre with Baird.

[Mircea Dobre, analyst]

Amy, I look forward to working with you again. So that's great. I guess the -- what I'm trying to make clear for myself here is are the moving pieces to your guidance because your commentary contained kind of a lot of moving pieces here. So can we put a finer point on the revenue in terms of what's moving here?

It sounds like terminal truck is lower. RV is lower, there is Fire & Emergency partial offset you also divested that dealership in [ Fire ]. I don't know how much of an impact that was, but can we kind of parse out all these factors, please?

[Amy Campbell, executive]

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

[Mircea Dobre, analyst]

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

[Mark Skonieczny, executive]

Like you said, I think we've been talking about where [ Amylin ] is and we know that's in 70% to 80% where we want to be. So when we talk about where fires like Amy talked about, we're expecting fire to catch up to that side. So we still got room to go across legacy F&E business, but we'd expect Fire to be more in line with [indiscernible] exiting there.

So we're slowly catching up. And as Amy said, in [indiscernible] we definitely are expecting a nice second half to build here. So I expect exiting at that low double-digit margin that we're talking about that we're more aligned, both businesses are aligned and then we have opportunity beyond that as we exit but we're fully not there back to 85% to 90% efficiency.

[Mircea Dobre, analyst]

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

[Mark Skonieczny, executive]

No, no. There's nothing from that perspective. And as you know, [indiscernible], majority of our plants, we run [ 4 10s, ] right? So we have theoretical capacity of a minimum of double, right, if we enter a second ship, as we ramp in some of our businesses, we've actually added second shifts in, say, welding or paint and fabrication, not on the assembly side, but there is opportunity to increase from that perspective.

So again, what I want to do in the back half as we talked about previously, is stabilized fire to the current rates and meet the expectations of the increase and then go from there heading into '25, right, and building off of that.

So we need to get stable at the rates we're at and then we can look at do we want to look at opportunities to increase our mine rate and our ships at those facilities as we move forward.

[Mircea Dobre, analyst]

Then maybe pivoting to recreation. I guess I'm going to try to ask [ Mike's ] question a little bit differently. The backlog continues to come down here and you revised your outlook lower by $100 million on the revenue side for this year. But obviously, in what's embedded in here, it seems like your revenues or shipments continue to exceed your incoming order intake.

And I'm wondering what the implications are here. I mean, it's difficult for me to see how 2025 is not going to be down again just based on the fact that your backlog is contracting, do you think differently, should we think differently based on what you see today?

[Mark Skonieczny, executive]

And again, it's a wait and see on the back half of this year, [indiscernible] and unfortunately, we don't have a crystal ball from that perspective. But from a month backlog, you're exactly right. In the Bs and Cs, we feel like they're entering the back half, and that's really a discussion on the [indiscernible], which have does not come back.

[ RVIs quoting A ] business being a 8,000-unit market now versus a 10,000 unit market. So we've seen a retraction there. And we've talked about that in Q1. Those are operating at a low backlog in our [ Towables ] business is less than a 1-month backlog, right?

So we continue -- if you look at the back half, it's really a reflection of the [ -- as and towables ] not coming back -- and to the extent we have to build our backlog. But again, when you look at the margin, we're generate is really managing the cost within that A and [ towable ] business in the back half until we see what order rates are coming into Q3 and Q4.

[indiscernible] to see what the order rates are going to be really on A and [ Towables ]. We feel good about our market position where we're at in the B and, C their ability to build that backlog entering '25. It's more around the -- as and [ towables ] still. It's really get [ Towables ] business, and I know [indiscernible] came up to earnings this morning as well.

We're seeing the same thing that people are -- the [indiscernible] are picking up, but they're more in the shorter, the stick intend sort of trailers, the lower-end trailers at a shorter length as well. And as you know, we're a premium provider within that space. So we just haven't seen the uptick in the premium side of that business -- yes, as an industry.

[Mircea Dobre, analyst]

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

[Mark Skonieczny, executive]

And again, we continue to flag as we've talked about, we've taken a significant amount of people out, but we've also looked at our cost structure across that, our fixed cost as well and addressing those.

So we've just been very proactive -- as our backlog have come down, we've taken the appropriate not only direct labor, but indirect and SG&A cost out of the business to get more of a normalized [indiscernible] those businesses are managing to that. So we've gotten ahead of it to make sure, and so we've anticipated a bigger drop or challenge ourselves to say, let's run to the bottom and then work our way up as the volume comes back, which has really played to our advantage to your point that we haven't incurred losses like we previously had when you look at those businesses collectively.

So I think that's really been the strategic piece of that is that we saw the market coming down. We challenged our companies to run to the bottom and then work our way up. And unfortunately, we just haven't seen the uptick that is there, which with the new cost structure, we'll see upside from a margin perspective as we go forward with the new cost structures these businesses are operating at.

[Operator]

And with no further questions, we will conclude today's conference. Thank you for your participation. You may now disconnect.