REV Group, Inc. (REVG) Earnings Call Transcript & Summary

Greetings. Welcome to the REV Group, Inc. First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the call over to your host, Drew Konop. Please go ahead.

Thank you, Stacy. Good morning, and thanks for joining us. This morning, we issued our first 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 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 have described in our Form 8-K filed with the SEC this morning and other filings we make with the SEC. We disclaim any obligation to update these forward-looking statements which may not be updated until our next quarterly earnings call, if at all. All references to a quarter or 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, everyone, joining us on today's call. I will begin with an overview of the quarter's consolidated performance and then I'll move to commercial and operating highlights achieved within the quarter before turning it over to Mark for our segment financial details. We're very pleased to report our best first quarter adjusted EBITDA performance since our IPO in 2017, with over 200 basis points of margin improvement versus our first quarter of last year. These results reflect the commitment of our employees toward building a culture of continuous improvement, combined with the changes that we've made over the last 9 months. First quarter net sales of $554 million were up 4% versus last year quarter, driven by increased sales in F&E and Recreation segments and partially offset by softness in school bus and municipal transit markets, which were impacted by COVID-19-related demand headwinds in the first quarter and throughout much of 2020. However, the quoting activity has picked up over the past few months, and we expect school bus end markets to respond favorably as more people have access to vaccines that are now available, and this will likely lead to reopening of schools next fall. First quarter adjusted EBITDA of $23.2 million increased 105% versus the $11.3 million a year ago, and it also reflects 210 basis points of consolidated margin improvement. The structural cost-out actions and restructuring over the past year as part of our operating model review are delivering bottom line improvement. These cost actions, combined with our building of operational excellence capabilities and implementing our cadence of operational reviews have realized opportunities to drive waste out and operate more efficiently. Within the quarter, many of our businesses improved on their throughput and operating leverage that drove revenue growth and gross margin improvements. Strong first quarter order intake resulted in 12% organic bookings growth versus first quarter of last year, and we exited the quarter with a healthy $2 billion backlog. Turning to Slide 4. We had several milestones and accomplishments within the first quarter that highlight the strength of our brands, our commitment to innovation and our focus on serving our customers. Across the portfolio, our brands sold market-leading positions within their categories. Three of these celebrated decade-long anniversaries that I'd like to publicly recognize. First, our Wheeled Coach ambulance celebrated an amazing 45 years of innovation and market leadership, having sold over 50,000 vehicles to commercial fleets and municipalities across the U.S., including the Fire Department of New York and the U.S. General Services Administration. Wheeled Coach's tagline is trusted by the toughest and this year's 45-year milestone, certainly back that up. Also celebrating milestone anniversaries are 2 motorhomes within the Fleetwood brand portfolio. The Class A Bounder recently hit -- released its 35th anniversary edition model with a class -- and the Class A Discovery released its 25th anniversary edition. These motorhomes have been 2 of Fleet's top-selling RVs and have proudly represented the legendary Fleetwood brand. Their enduring presence for the Fleetwood brand and these models is a testament to being the best level RV for generations of families. We are pleased that families have and continue to be entering the RV lifestyle, and we look forward to another 25 years of delivering our customers the conveniences of home while they are on the road. Our Spartan Fire brand announced a new purpose-built chassis, the design -- that is designed to provide fire departments with safety comfort and the performance of a custom cabin chassis while meeting lower budget requirements. Typically, these trucks have been built using a conventional commercial chassis with a standard cab that did not always accommodate the equipment and protective gear that fire personnel need in serving our communities. This provides our customers with the opportunity to meet their requirements that only a custom cabin chassis can deliver like a commercial cabin chassis economics, and it is a real opportunity for Spartan to expand their cabin chassis market share. Ambulance fleet owners will be able to more efficiently -- more effectively manage and efficiency of their crews and the safety of their patients with the advanced -- initiative of our advanced vehicle informatics introduced within our AV business in January of this year. Among the benefits of the Traumahawk telematics are allowing real-time driver and fleet monitoring that includes GPS location service, accelerometer data, collision alerts, maintenance monitoring and functional accessory information. This will enable our customers to respond more quickly and reduce their total cost of ownership by utilizing predictive maintenance and extend their fleet service life. In the first quarter, we announced a partnering agreement with Hyster-Yale in our capacity business to develop electric and hydrogen automation-ready terminal trucks. These trucks have an attractive profile for fleet electrification. They operate in relatively close radius. They have high torque requirements, and they have relatively higher carbon emissions. The project is currently in development, and we expect prototypes on the ground by the end of this calendar year, beginning full-scale production within fiscal year 2022. In Recreational vehicles, we continue to experience high demand. Our momentum continued at the Tampa Super Show this January, which marked record sales for the Class A business. This year show our motorhome and luxury coaches reported nearly 40% growth versus last year despite the attendance being down 25%. Outside this show and in all categories, we're experiencing unprecedented presale of [indiscernible] inventory and dealer lots remains near historic lows. Within the quarter, we introduced innovations and product enhancements to the REV portfolio. I would like to highlight one that I feel offers differentiated features that provide enhanced value to our customers. The onset of COVID-19 has heightened the safety protocols for all employers. REV, like all others, has substantially limited the presence of personnel in our offices and manufacturing sites. We've increased testing frequency and quarantine suspected cases to provide the necessary spacing for social distancing. The workplace situation in our nation's first responder space is no different, and it's actually probably even more challenging. We are proud to support those who are on the front lines every day and proud to provide an active air purification system that reduces exposure to airborne contaminants like COVID-19. The use of this system provides a safer cabin environment for first responders that have a hard time distancing from others and do not have the option to work at home. We have been working with municipalities, dealers and contractors to retrofit existing units and equip new unit deliveries with this enhanced safety feature. Finally, we are placing focus on all areas of value creation for our shareholders. We have discussed our efforts in operational excellence, but we're equally focused on improving our commercial capabilities. This includes our product management, marketing, sales operation and channel performance. We are very focused on how we can work more closely and better support our dealers. We have announced new dealer signings, and we're focused on commercial operations and performance. These efforts coincided with the rationalization of certain brands over the past 2 quarters and the realignment of these brands within our dealer network. This focus on commercial excellence, combined with our improving operational performance and our organizational cadence rigor will enable us to continue to deliver improved financial performance with consistent conversion to free cash flow, increasing total shareholder returns. I will now turn it over to Mark for the details on our first quarter financial performance. Mark?

Thanks, Rod, and good morning, everyone. Please turn to Page 5 of the slide deck as I move to review our segment level performance. Fire & Emergency first quarter segment sales were $281 million, an increase of 36% compared to the prior year. This includes approximately $62 million of sales attributable to our acquisition of Spartan ER that was -- that occurred on February 1 of last year, making this the final year-over-year comparison that will include inorganic activity. Excluding Spartan, organic segment sales were up 6% as legacy Fire and Ambulance throughput increased despite lingering COVID-19-related disruptions. The disruptions we are currently experiencing are more limited and generally within a handful of geographies that have stricter quarantine policies, tighter labor markets or regional outbreaks. The mix of Ambulance shipments improved within the quarter with more high content units being delivered, offsetting a reduction of lower-priced band units. Within the Fire division, our businesses were able to realize price increases that were within their longer duration backlogs. Over the last several weeks, businesses within this segment have experienced improved customer inspection and delivery acceptance. However, the on-site visits have not yet returned to a normalized level. F&E segment adjusted EBITDA was $10.2 million in the first quarter 2021 compared to $1.7 million in the quarter of 2020. The increase was primarily the result of improved profitability in both the Fire and Ambulance divisions. Productivity improvements at our largest Ambulance plant contributed greater bottom line profitability, which resulted in the Ambulance division EBITDA margin that was 180 basis points better versus the prior year quarter. Our largest fire plant's productivity also significantly improved year-over-year as its lean practices and pricing discipline are taking hold with margins increasing over 800 basis points versus last year's first quarter. The new management team that arrived last year has installed a regular cadence of operational reviews, Kaizens and pipeline of cost reduction projects to support future improvements. Total F&E backlog was $1 billion, up 26% year-over-year. This includes backlog acquired in the Spartan ER acquisition, strong Ambulance order intake over the past year and a return to regular fire truck order patterns over the past several months. Organic fire orders increased 28%, and Ambulance orders increased 5% versus the first quarter last year. We expect this level of backlog to support mid single-digit organic growth for the segment in fiscal 2021. And the momentum in converting sales to EBITDA to continue with year-over-year and sequential EBITDA margin improvements throughout the year. Turning to Page 6 -- Slide 6. Commercial segment sales of $83 million were down 48% compared to the prior year period. Prior year Commercial segment revenue included approximately $50 million from the shuttle buses that were divested in May of last year. The remaining decline in sales was related to lower sales of school buses, which were down 29% year-over-year and the decline in municipal transit sales that were down 23% versus the same period last year. This decline is consistent with transportation end markets that remained soft due to lingering impacts from COVID-19 within our first fiscal quarter. Partially offsetting the decline was an increase in sales of terminal trucks and street sweepers, which were up 60% and 80%, respectively. Recall these specialty markets were depressed in 2020, but they have bounced back quickly and appeared to be experiencing catch up demand cycle. Specialty division sales benefited from delivery against a large rental company order street sweepers and increased restocking in the terminal truck market. Commercial segment adjusted EBITDA of $7.1 million was down 34% with the prior year period, which included $800,000 of EBITDA related to divested shuttle bus businesses. The decline in EBIT was primarily due to lower volumes and the resulting reduced productivity within the school bus and municipal transit bus businesses due to COVID-19-related end market disruption. Partially offsetting this was an increase in production volume and profitability in the terminal truck and sweeper businesses within our Specialty division. These businesses leverage the cost-out actions taken during last year's end market decline and improved EBITDA margin 260 basis points year-over-year. Commercial segment backlog at the end of the first quarter was $234 million, down 49% versus the prior year quarter, which contained $77 million of shuttle bus backlog. And organic backlog decline of 38% was a result of decreased school bus and municipal transit orders as well as the timing of a large municipal order that entered the backlog in the prior year quarter, partially offset by an increase in specialty business backlog, which benefited from another strong quarter of order intake. The full year outlook for the Commercial segment continues to be aligned with municipal budgets, school attendance in both undergraduate and graduate institutions and a general population's willingness to travel. School bus quoting activity has returned to historical norms, and we are optimistic that greater availability and adoption of COVID-19 vaccines will drive confidence to convert these quotes to orders. Within the quarter, we announced the delivery of the state of Connecticut's first electric school bus, which is one of our type A buses. Due to the relative size of carbon emissions, the larger type B and C buses have been early adopters. However, we received 11 additional electrical school bus orders and quoted over 40 electric units in the first 2 months of 2021. We believe this category will benefit from the overall fleet electrification trends that the industry is experiencing and expect our type A electric school bus unit sales to eventually grow at rates in line with the larger bus types. Municipal transit bidding activity remains soft in airport and university markets. However, we are advancing in the bid process for several municipality transit awards. Turning to Slide 7. Recreation segment sales of $190 million were up 14% versus last year, reflecting increased shipments of Class B and C units and improved Class A mix versus the prior year quarter. Production at our travel trailer and camper business located in California remained impacted by COVID-related absenteeism, work restrictions and higher-than-normal temporary worker turnover. Production was also limited by labor constraints at our Class A business -- in our Class A business. Despite the challenges, shipments remain strong. As Rod mentioned earlier, our Class A business set a record at the Tampa Super Show, and the past 2 quarters have been all-time high sales for our Class B and Class C businesses. Recreation segment adjusted EBITDA was $15 million for the quarter, up 116% versus the prior year. The increase in EBITDA was primarily the result of our improved productivity across all categories despite COVID-related disruptions that occurred primarily within our Class A and nonmotorized businesses. Despite these challenges, the segment was able to improve EBITDA margin 370 basis points versus the first quarter last year and generated a solid 35% incremental margin on the sales increase. Segment backlog increased 377% year-over-year to $754 million, which was another record backlog as a result of strong order intake across all RV categories over the past 3 quarters. In our first fiscal quarter, orders were up 163% versus the prior year. Since the emergence of COVID-related shutdowns, we have gained retail share in each of our motorized product categories and travel trailers. Across the segment, retail sales continue to be in line with wholesale shipments and dealer inventories for our brands are down an average of 50% year-over-year with most at or near historic lows. First quarter net cash provided by operating activities was $1.9 million compared to a use of $13.3 million in the prior year quarter. Cash generated was primarily related to higher net income, the receipt of a CARES Act tax refund, partially offset by decreases from the timing of accounts payable payments. Trade working capital on January 31 was $445 million compared to $427 million at the end of fiscal year 2020. The change was primarily a result of accounts payable management timing, partially offset by efficient accounts receivable and inventory management. Net debt as of January 31 was $323 million, including $9 million of cash on hand versus $330 million at the end of fiscal 2020. At quarter end, the company maintained ample liquidity with $230 million available under our ABL revolving credit facility. We are currently working with our banking partners to refinance both our term loan and ABL credit facility and expect the refinancing to be completed before the end of the second fiscal quarter before the facilities become current. During the quarter, we continued our portfolio review with a focus on our core markets and geographies. As a result, we reached the definitive agreement to divest our Rev Brazil business and classify it as an asset held for sale, resulting in a noncash $3.8 million loss on sale within the quarter. We expect to close this transaction in our second fiscal quarter. Today, we are initiating full year fiscal 2021 guidance, with sales expected to be in the range of $2.45 billion to $2.6 billion or 10% growth at the midpoint. Adjusted EBITDA in the range of $125 million to $135 million, representing an increase of 85% to 100% versus fiscal 2020. We expect net income in the range of $38 million to $52 million, and adjusted net income from $56 million to $70 million. We target 90% to 100% free cash flow conversion on adjusted net income in the range of $45 million to $70 million plus any additional funds from other activities. With that, I'll turn it back to Rod for closing comments.

Yes. Thank you, Mark. And I'd just like to start by saying, first off, again, we want to thank our employees for the work they're doing and the changes that we've put in the business here. They've responded to it remarkably, and we very much appreciate their efforts and what they've done. I'd like also to ask you to please remember to save the date of April 15 for our virtual Investor Day. And to reuse the registration link attached on our presentation deck today for that. The link will also be posted on our investor website page, if you choose to do so in the future. The agenda for the morning will include a brief introduction to the REV Group, our history and the segments that make up those and also are new to the story. We will give more detail on the tools we are using to drive results across our business organization. It's been historically referred to as the REV business system. Finally, we will provide intermediate financial targets that we expect to achieve from the structure and process that we've put in place over the past year and continue to deploy. We won't take your entire day. We have planned to do this in 2 hours with prepared remarks, and we'll have 45 minutes of questions. I want to, again, thank you all for joining the call today. And now we'll open it up to the operator for any questions that you might have.

[Operator Instructions] Our first question comes from Mig Dobre with Robert W. Baird.

I appreciate all the color on each segment. I guess I'd like to talk a little bit about Fire & Emergency. As you noted in your slides, you had pretty nice order increase in both Fire and Ambulance. I'm looking for a little more context around what you think is driving the growth here Obviously, with COVID and with some pressure on municipal budgets? I mean, this has been an area of concern and potentially seeing weaker demand. So maybe you can comment on Fire specifically and then also, obviously, really good growth in Ambulance. What what's maybe going on there?

Well, I think it's -- throughout the COVID period, we had issues. We are all kind of trying to figure out exactly what the short-term, mid-term and long-term impacts were going to be to these municipal markets. And we saw periods of, I'd say, where things were delayed, a lot around people who want to get together to approve things and whatnot. And certainly on the receiving and we've talked about in their calls, people come into our plants to accept and inspect vehicles. But coming out of the fourth quarter, we've continued to see demand going back to what I would say is more of a historical norm. And I think I'm certain, at least on the Ambulance side, the COVID funding, the extension of that initial funding that came -- really that came out for another year and now with the new bill being passed, there's some momentum, I guess, to offset deficit but also provide funding access to these municipality, and we're still trying to understand the full nature of that, obviously. But I just think that we're working through a process here that's kind of first-time for everyone to go through. And the reality is it's probably had -- we're probably returning back to more of a normal in terms of orders and -- because we're speaking about order intake. On the execution side, it's just us being able to convert maybe a little bit better than we have in the past. But on the order side, we see good order intake, and we see good bidding activity. And we talked about it even -- you didn't ask about school bus, but we continue to -- we see bidding activity in that improving as well. So I think we're optimistic about coming through this and the benefit these vaccines are going to offer and hopefully getting returning to a normal in the U.S. here. So Mark, I don't know if anything you want to add to that?

No, I think that's right. So obviously, Mig, with our backlog, it gives us some momentum here to execute on there for the remainder of the year. But obviously, the pipeline is what we're looking at here. And as Rod said, we're -- and as I said in my prepared remarks, we see -- are seeing bid activity that has normalized. And the -- on the Ambulance side, it's actually been heightened with the CARES Act, as Rod referred to. So we are seeing heightened activity in there and with the extension and obviously, what the new announcement holds and the new bill holds, I think, is only a tailwind for us from that perspective.

I see. Okay. That's helpful. If we can talk a little bit about margin here, you're pretty clear about expecting improvement. But I'm just sort of wondering if I'm looking at your overall guidance, by my math, it seems to imply about 25% incremental margin on the top line growth you're baking in. As you look at Fire & emergency specifically, do you think this segment should have higher or lower incremental margins relative to company overall? And I asked because like we talked in prior quarters, there are so many moving pieces here. Your internal improvements, incremental volume, pricing seems to be better. So some color here would be helpful?

Yes. I think as we move in, we've been pretty transparent, right, with the improvements that are needed on the Fire business specifically. So we would expect to see those incremental margins continue to improve throughout the -- definitely on a year-on-year basis. As we've highlighted, especially on our Ocala, right, which we've talked about multiple times in the E-ONE business. And as we continue to focus on the other activities as well as the integration of Spartan, as we move to look at that and vertically integrate some of the chassis opportunity, we will see some margin expansion there from that perspective. So I think we'll see year-on-year incrementals as we continue throughout the year.

But do you think they're going to be higher than the overall company in the segments business?

Yes. Yes. Yes.

Got it. And last question. Going back to Collins here and the EV platform that you're starting to build. It seems to me like this product is based on the F-450 chassis. Would this have applicability for ambulances as well? Or is that not something that you're contemplating?

Maybe rephrase the -- I'm sorry, rephrase the question, make sure I understand what specifically what you are asking?

Yes. So your school bus product, the EV product, right? That's based on a Ford F-450 chassis and I know that you're using these types of chassis in ambulances as well. So I'm wondering if at a point in time, we should be expecting a BEV ambulance product out of you as well?

Well, so I would say that all of our business units have development in the EV space. And they're all in different -- somewhat different places in terms of the partnerships we're working through and how we're doing the kind of the co-development. We're working with an integrator on the capacity -- the -- I'm sorry, the Collins offering. And when you think about the requirements for a school bus versus the requirement from ambulance unloading, they're quite a bit different. So you have to have a different process to go through for an ambulance. Now we do have work going on there with the different -- in our LEV business development work on the electric side that we're working on. And we also have some work in our other ambulance businesses that's more around idle mitigation and those types of things. So all of our businesses have the transferability from one to the other. There will be lessons learned, but there are in these early stages of electrification and development, some of these are more of a grassroots. How do you make it work for the application because the use cases are very, very different in these vehicles from one segment to the other. But there are learnings, I'm sure that will transfer. So that's kind of how to think about it is that you got to think about the end-use and the design of that purpose. You might be working with the same integrator, but it would be a different set of requirements.

Next question comes from Stephen Volkmann with Jefferies.

Maybe just to build off Mig's question there. Are you willing to give us some kind of a range as what you think as any segment margins could exit the year at, just so we can get a sense of how you think this builds?

Yes. I would say maybe probably not from that perspective, I guess. I mean, obviously, we'll be up year-on-year, but specifically where we're going to exit the exit rate, there is still a lot of work we have to do here from on margin accretion. We're confident that we're going to be in the 25% to 30% incremental margin there. But you can probably model off of that, but we will exit, obviously, higher than our 2020. So if you model that in, that growth in those incrementals off the revenue base, I think you would get, obviously, closer to the mid-single digits is what we said in our last prepared remarks. So if you sort of earmark around there, mid-single digits for there versus the 3.5% that we exited last year.

Right. Okay. And longer term, as you start to see the benefits of all the stuff you guys are doing, is there a margin target that kind of makes sense? Can this be a double-digit margin business over the next 2 or 3 years or something?

Sure. I mean, that is our goal, that's our stated goal to get there. And as you -- as we continue to progress through the portfolio and look at these brands and the operational cadence that we're building here, we definitely see that as a double-digit opportunity. And we've proven that we can do that in the past. So that continues to be our goal here to reach that in that business.

And then maybe one more, just switching to RV, actually margin performance quiet good there. But it feels like you were saying, that's where the biggest kind of COVID-19-related issues were. Please correct me if I'm misreading that. But it feels like once those COVID-19 issues kind of pass-through the chain, there should be some pretty significant near-term upside to that margin?

Yes, definitely from that perspective. And specifically, we didn't highlight it here, but we did get hit pretty dramatically, just like our bus business that got hit in California, our Lance business, which is our towables business, which I quoted here, was significantly impacted in the quarter. So that is a well-performing double-digit business that was down from the perspective of being able to produce. So they have the backlog. All of our businesses have the appropriate backlog to build off of. So that is one as well as our Class A Decatur which is in Decatur, has been hit significantly with the COVID, I would say, more than even Elkhart, where some of our competitors are and where we are positioned as well. So we're also ramping up that facility. So as the line rates improve, the ability to get people -- new hires, not to mention the people that are absentee because of COVID-19, we've been hit relatively hard. So we'll -- we expect to see productivity improvements at our Class A as well as our Lance going forward. And our Bs and Cs business have operated very, very well. And I think you've heard RV business from a supply chain perspective, been hit pretty hard industry-wide, but we've done a nice job managing the supply disruptions within that business.

Great. And do you think the supply disruptions fade as the year progresses? And I'll pass it on.

Yes. It's hard to say in RV. We've done a nice job on materials management group, where it probably we've been able to contain within the quarter, but it challenges every month as you build these. And you have furniture shortage at the end of the line, you're waiting to build those out towards the end of the month. So we don't have the full completions as we would historically within that group on a week-to-week basis, but the team has done a nice job making sure we get completions by the end of the month and the end of the quarter. So we're managing within that supply chain within that cycle. But the expectation would be that these would improve as we go along here.

Next question, Jerry Revich with Goldman Sachs.

Nice quarter.

Thank you.

I'm wondering if we could talk about the electric vehicle opportunity for you folks. Can you just touch on if you folks have higher profitability per unit because of higher content on electric buses and potentially other electric products when they come down the line. Can you just calibrate us on how to think about profit per unit as we ramp up production over the next couple of years?

Yes. First off, as you can imagine, when you're -- a lot of these products are still -- I would talk in terms of end market demand, there's a couple of exceptions, but vast majority are like in a prototype development, right? You're still developing these, you're not at scale on production. So when you think about margins, contribution margins today versus contribution margin when you are at scale, there's going to be a lot of maturity, maturing go out over time as you streamline the processes. Because you're actually -- the labor content and the amount of development in the product is different today. So our margins are, I would say, at par or par plus today, I think, with the few products that we have produced. And then as we get demand, as we talked about in Collins, we'll continue to improve efficiencies and streamline the design. So I think that there's opportunity there to do better. But these are mature end markets. So when you think about the impacts of EV long term, is you really substituting technology, you're not really shaping end markets. So the question is, how do you -- how is the technology going to mature and the cost structure, these things are going to change over time? It's going to drive our ability to capture additional margin. I think we're optimistic on that from a technology standpoint, but we're early, I would say, in cycle here to understand what the end game is going to be like on margins as we get competitive platforms from a chassis standpoint to buy against versus working with people to co-develop. That's going to -- that dynamic will change the industry, I think, a lot. And the pace at which that happens is going to play out by segment. What I mean by that transit is going to move different than commercial bus, it's going to move different than school bus and ambulance. All these are going to move at a different pace. And so as you see those mature and the competitors get lined out, that will -- we'll be able to tell a better margin story going forward. But we're early in the cycle there, I think, from my perspective. Mark, you got anything there?

Yes. No, I agree. I agree.

And on that note, obviously, increasingly complex competitive structure across a broad range of traditional players plus potential new players. Can you talk about where on the initial set of orders that have come out to the Street so far, if you will? What your order share has been for EV products versus would it been unconventional? In other words, how would you characterize the competitive landscape for EV-based school buses and transit buses versus what you had been used to seeing on the high side?

Yes. I don't -- I mean, I don't know that anyone could accurately reflect where they're at in their market share against on a competitive EV standpoint. I mean I think -- and you'd have to have that conversation as you suggested by segment. Mark made a comment that the Type A school bus is lagging behind C and B, because of the -- it's just -- it's a gas bus. And so the diesel and the consumption is greater in the B and C. So the market is less mature there. So the amount of units being in the class type A are different or lower. But I think relative to what we're seeing in coming orders that Mark mentioned and the pipeline that we bid that I like our position relative to our peers in that space. Transit bus is a bit different. It's probably a little bit ahead. Our share probably there on that one is a little bit lower, is lower. But -- and the other ones are such fledgling when you think about Fire truck and Ambulance and RV, and there's really not really even a conversation to have there because there is no real end market right now in terms of people building and shipping electric vehicles in those segments, right?

Yes. I think in the terminal truck, as we've highlighted, I think that gives us a great opportunity with a great partner there and someone who has the battery technology that they have as well. So I think we've partnered up with a great partner there in Hyster-Yale. So we're looking -- I think we're looking very good from a terminal truck perspective.

Okay. And then in fire and emergency, really strong performance this quarter, both from production and margin standpoint. If we apply just normal seasonality to your production schedule, that would imply organic growth should be in the low teens for the full year, which, as somebody pointed out earlier, is a pleasant surprise relative to municipal budgets, at least on paper field constrained. I'm wondering if you could just expand on the earlier discussion. Is the strength that you're seeing from both an order standpoint and production standpoint relative to particular products that you're in or geographies that you're in? Or do you think that's a market-wide phenomenon? And what are you hearing in terms of the actual drivers of the big spending increase for fire trucks and ambulances when obviously, budgets are coming back in '21, but they certainly had a tough '20?

Yes. I think that -- first off, I'd say the intake activity has been very good. We mentioned that -- so that's good. The forward quoting activity is very good. And if you try to think about what would change that momentum or that you think about the first CARES Act got extended to the extent that has an impact, municipalities are somewhat opening up. I think the larger municipalities, I would say, have probably been a little more affected by COVID just because they're -- the nature of how COVID has affected us all, right? Population densities, the larger cities have had -- had more to deal with there and that's obviously impacted the municipalities. I think the second wave of funding, which we're still -- through this bill got passed, we're still working to understand the implications of that. But I -- it's hard to argue that, that won't be also beneficial to forward demand because, one, there's money set aside specifically related to the funding things that would like this, that would help us and also the relief that the states and municipalities are going to have around budget deficits is also going to help them get after some things, infrastructure things and capital expenses that they want to go get to as well. So I'm -- like we've got momentum both from an intake and from a quoting. And everything I see suggest that there's more support for that momentum continuing and maybe even building. But we just got to -- we're obviously watching it carefully because we're still in a time where we want to get optimistic. We want to believe, we do know we're optimistic about our ability to execute on what we have. We continue to be very positive on that. But there is some element of looking at the market to say, man, we just we want to get through this. We want these vaccinations to take hold. We want to see the immunity step up. We want to see communities return to normal. And we think that's good for not only us, but everybody. So that's kind of I'd characterize -- you guys going -- Mark, anything you want to add?

No.

Next question, Courtney Yakavonis with Morgan Stanley.

Just wondering if you can comment a little bit on the Brazil divestiture. I think that was entirely within Fire & Emergency, but can you just remind us how big was it? And if it's in any other segments? And how the margins were relative to the baseline business? And then I think you also have some international operations in China, just curious if there's any plans for that?

Yes. I would say Brazil is relatively small. So I would say it wouldn't have a material impact overall because, obviously, the challenges that we've had in Brazil in that economy. So it's not going to have a material impact, Courtney. It's more around exiting that -- get rid of the focus, right? It was just a distraction more than it was a core focus of ours. So getting out of that market, it was more of an upfitter. So it was just taking fully built chassis -- not chassis, but units and upfitting them for ambulance or police putting sirens and things like that on. So you could argue with it wasn't really in our core competency from that perspective. It's more of a lower end upfitter operation. But I would say it wouldn't -- it was not going to have a material impact to that segment.

Okay. Great. And any thoughts on the China JV?

Yes, we continue to look at that. Our China JV is performing well. It does have an RV element to it. So China is also performing well from an RV perspective. So we do have that, that JV is making money. As you probably know, Brazil historically has lost money for the company. And so we still have to look at that area as an opportunity for us. Whereas South America, we didn't see that from a portfolio and its ability to get to double digit earnings.

Okay. Great. And then I think you guys suggested mid single-digit margins for F&E. I think last quarter, you had suggested that Recreation margins would step down. I appreciate some of the comments on supply chain issues mitigating there, but you did -- you were above that goal of, I think, 5% to 7% in Recreation for the first quarter. I think you'd also talked about Class A mix being an impact. But do you have any updated thoughts on your Recreation margin targets for the year? And then same question on Commercial, where I think you were targeting high single digit?

Yes. I think the commercial will hold, like we talked about the high single digits, and then we can obviously talk on separate calls about Recreation. We're still -- we're probably seeing the upside to that mid-single there, so we can walk through that. But we're probably in the higher the 6% to 8%, I would say. Again, there are supply chain issues there. But as I referred to in the quarter, we probably would have done even a little better if it wasn't for the Lance disruption because that is a well-performing business, and that was significantly down in the quarter. So we see momentum in the Class A, and it really comes down to Class A performance to be able to bring on new people to increase our line rates and make sure that we can build against our backlog. So it really comes down to that, which is what we talked about last quarter. So as we see momentum in Class A, we'll feel more confident in the accretion of our margin going forward.

[Operator Instructions] Our next question comes from Joel Tiss with BMO.

Just want to beat the dead horse on the margins. If we go to like '23 or '24, and we kind of get COVID and production disruptions and all these other things kind of normalized. Is -- and maybe it is just too early, and it's not something you want to talk about. But you think that 25% incremental margins is still going to be about where we end up like other -- there'll be other puts and takes? Or you think that there's some pretty good upside to that, as we normalize way out, maybe it's '23 or '24?

Yes. So Joel, maybe I would just ask if you could hold your patience to April 15 because that will be, obviously, with us coming out with the near-term guidance here that we will be providing midterm guidance for -- or goals in the Investor Day on the 15th. So rather than take our thunder away since we provided guidance today, we're -- Drew is happy to provide our midterm guidance or aspirations coming up here in April 15. So we'll provide those then if that's okay.

Maybe another jumping the gun question too then. Can you talk a little bit about other portfolio changes that you guys are thinking about making? And also, your debt-to-EBITDA is starting to come down to pretty attractive levels. Are there things that you might want to add, again, as we normalize in '22 or '23?

Yes. I think if you go back to the original premise or thesis here, there -- as we get our operational act in order, and I think we're making great progress there and get the debt numbers you just talked about where we want them to be. There's still a consolidation opportunity in the space as we're in adjacencies that we can explore. Now that we're operationally capable to go acquire things and operate and get those things to convert, I think that will be something we'll look at. And there's -- and as all companies, you have a pipeline of who you think that is by tangents in your -- in the segments you're in. And then there's other things that are more broad and more transformational that we would always be looking at as well. But I think as we talked about from the very first earnings call is we're focused keenly on operations. We're now making progress. We're starting to think around commercials and use of capital opportunities like where you're going. And I think that's -- we get the dead in the right spot. There's both inside the spaces. We're in the day there's opportunity and there's opportunities more broadly as well. Technologies and whatnot, they will always be open to you so I'd probably leave it at there. But I think that, that's something that we're obviously looking at, and we'll talk a bit about that, I think, on Investor Day as we...

Yes, on April 15, we'll give some views on our capital allocation. You're right, Joel, as we continue to produce this income work. And again, as we said, it's all about producing income and driving it down to cash, right, and cash conversion. So that's our focus here as we exit '21, and we'll provide some of that guidance on capital allocation strategy in the call in the Investor Day.

Okay. Okay. Great. And then just last one, I'll glue 2 together. Can you talk a little bit about pricing power and maybe price cost? And also is the Spartan backlog a little bit more profitable than the segment average or a little bit less or any help there would be great?

Yes. The Spartan backlog, we're still working through -- we're still working through, obviously, with the integration and you get a little challenges there with obviously being a chassis supplier, right, and providing intercompany through our own brands as well as to OEM. So we're still working through that and the visibility to the backlog. And then from a cost price, that's one focus, as Rod talks about, on our commercial disciplines and making sure that we know what our costs are and how we're realizing price. So we continue to improve our visibility. But again, it's -- with some of the systems we have in place, we were still working through fully understanding what's our backlog business that on average in fires 9 to 12 months. It's very important, obviously, to make sure that we're quoting things with anticipated inflationary factors as well as cost downs and making sure we don't give those away through the whole customer supply chain or value chain, right? So we're still working through that systematically, but it definitely is on our radar that we're able to deliver a positive cost price equation.

I would like to turn the floor over to Rod Rushing for closing comments.

Okay. Well, thank you. So in closing, I'd just say that, one, I think we're very pleased with the progress we're making. Again, I'm very thankful to the team for kind of change we put on them and the way they've embraced it. And we have a lot of work to do, but I think the momentum is building. I appreciate the questions today. And obviously, please note again, April 15, we look forward to that conversation as well, which will be a little bit more forward discussion around what we think the opportunity is. So with that, we'll end the call. And again, thank you for joining today.

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