REV Group - Earnings Call - Q1 2018

Transcript

Speaker 0

Greetings, and welcome to the REV Group First Quarter twenty eighteen Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Sandy Bugbee.

Thank you. You may begin.

Speaker 1

Good morning and thanks for joining us. Last night, we issued our first quarter twenty eighteen results. A copy of the release is available on our website at investors.revgroup.com. Today's call is being webcast and is accompanied by presentation, which includes a reconciliation of non GAAP to GAAP financial measures that we will use during this call. It is also available on our website.

Please refer now to Slide two of that presentation. Our remarks and answers will include forward looking statements within the meaning of the Private Securities Litigation Reform Act. These forward looking statements are subject to risks that could cause actual results to be materially different from those expressed or implied by such forward looking statements. These risks include, among others, matters that we have described in our Form eight ks filed last night with the SEC 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 conference call, if at all.

All references on this call to a quarter or a year are to our fiscal quarter or fiscal year unless otherwise stated. Joining me on the call today are our President and CEO, Tim Sullivan as well as our CFO, Dean Nolden. I will now turn the call over to Tim.

Speaker 2

Thank you, Sandy, and welcome to everyone on the call. Thank you for your interest in REV Group. Before I begin my review of the quarter, I'd like to thank everyone who joined us and the more than 1,400 dealers at our Dealer Summit Investor Day event in Orlando in January. We showcased in more than 50 REV vehicles across our entire portfolio. We discussed our parts and international strategies in greater detail, and we provided a sneak preview of our twenty nineteen RV lineup of products.

We received great feedback on the event from dealers, customers and various stakeholders. I would encourage anyone who might be new to our story to refer to Investor Day presentation materials, which are still available on our website. Now let's review our first quarter twenty eighteen. Financial results were in line with our expectations. We are on track to meet our full year plan.

Net sales grew 16% and we experienced sales growth in each of our reporting segments. Our 2017 acquisitions continue to perform well and we're implementing operational initiatives that will help us meet our objective of driving earnings growth that outperformed sales growth in 2018. All three of our segments Fire and Emergency, Commercial and Recreation have favorable outlooks with continued strength of demand in their end markets and strong backlogs. We mentioned on our last call the November introduction of the Chrysler Pacifica Hybrid rear entry mobility van. And during the REV Summit in January, eOne introduced their new Titan ARF, adding two new products in the quarter.

The Titan has been designed to allow us to compete on the global stage for airport opportunities, which represents a large and attractive end market. I am pleased to advise that we have already booked our first significant sale of this product with a sale of nine units to a customer in Peru. We had two transformational transactions in the quarter. In addition to the Cherry JV consummated the first week in December that we announced in our last call, we signed a collaboration agreement in late December with Daimler in Germany to distribute market. SETRA is the leading European motor coach brand.

Other collaborative efforts are contemplated with the new Daimler agreement. Also in early January, we acquired Lance Camper Manufacturing Corporation. Lance adds a premium portfolio of truck campers, towable campers and toy haulers to our existing suite of motorized offerings and gives the recreational segment access to the higher volume and rapidly growing towables RV market segment. Lance has the number one selling truck camper in The U. S.

And has won the National RV Dealer Association's prestigious Quality Circle Award sixteen years running. We're in the early days of integration process right now, but the addition of Lance is a great complement to our existing product portfolio and we expect it to continue to long term sales growth and profitability improvement. Slide six shows our outlook for the remainder of the year. Our full year revenue and adjusted EBITDA outlook remains unchanged, but we've revised our expectations for net income and adjusted net income to reflect the first quarter results. We expect full year twenty eighteen revenues to be from 2,400,000,000.0 to $2,700,000,000 and adjusted EBITDA from $200,000,000 to $220,000,000 and we now expect fiscal twenty eighteen net income to be in the range of 90,000,000 to $110,000,000 and adjusted net income to be in the range of $110,000,000 to $125,000,000 This outlook represents adjusted EBITDA growth greater than 30% fiscal twenty eighteen and puts us on track to achieve our goal of doubling pre IPO EBITDA and adjusted EBITDA margins of 10% by 2019.

As will be the case every year, we expect to generate the majority of our adjusted EBITDA during the second half of the year with only 30% of our full year adjusted EBITDA expected to occur during the first half of the year. Now I'll turn the call over to Dean to provide some more detailed coverage of our financial performance.

Speaker 3

Thanks, Tim, and good morning. Please move to Slide seven. As Tim said, our year is off to a good start with sales growth, and we're on track to meet our plan for the full Quarterly net sales of $514,900,000 were up 16.2% over last year. Recent acquisitions contributed to our sales growth in the quarter, but we also experienced growth across all operating segments with a few exceptions due to sales mix and timing of shipments. Net income grew by 171% in the first quarter to $9,400,000 or $0.14 per diluted share.

Adjusted net income grew by 72% for the quarter to $9,700,000 or $0.15 per diluted share. We are pleased with this improvement, which was a result of benefits from acquisitions, higher earnings from operations, lower interest expense and the favorable impact of recently enacted U. S. Tax reform. Adjusted EBITDA for the first quarter increased 1% to $21,300,000 compared to adjusted EBITDA of $21,100,000 in the 2017.

Adjusted EBITDA performance during the quarter benefited from the result of acquisitions as well as higher net sales and earnings from certain business segments. Adjusted EBITDA was also somewhat impacted by one time expenses pertaining to the transactions Tim mentioned that occurred in the quarter. We expect the pace of operational leverage to accelerate in fiscal twenty eighteen as we benefit from a full year of the continued improvements made in procurement, operational efficiencies as well as from our increased scale. Let me now turn to Page eight to start to discuss the performance of our segments. Fire and Emergency segment sales increased 16.1% to $215,300,000 for the 2018.

Three primary drivers of this increase were higher unit sales, the contribution from our April 2017 acquisition of Ferrara and higher average selling prices. F and E adjusted EBITDA for the quarter grew 8.7% to $18,200,000 driven primarily by material cost reductions, improved manufacturing efficiencies at our recently acquired companies and the impact of the Ferrara acquisition. Going forward, we see continued strength in our fire and emergency business from continued increasing steady demand in both fire and ambulance markets. As shown on Slide nine, in our Commercial segment, quarterly sales were up 1.5%, primarily from higher unit sales in all segment product categories, excluding school bus. Commercial adjusted EBITDA was down $3,700,000 for the quarter.

The decrease is primarily due to lower school bus sales and a shift of the mix of transit bus unit shipments in the quarter, which tend to skew the numbers significantly due to the dollars involved. In addition, we incurred some onetime costs during the first quarter to support manufacturing process improvements at one of our shuttle bus facilities. We believe the end markets in the commercial segment remain strong and we believe our margins will increase through added scale and improvement in shuttle bus sales growth and a full year benefit of actions taken in fiscal twenty seventeen and the 2018. Turning to Slide 10. Quarterly sales in the Recreation segment grew 32% to $167,200,000 This increase was partially offset by a managed decrease in volume of Class A units and increased promotional activity to older models prior to new model introduction in the second quarter.

We exited the quarter with segment backlog up 95% to $283,000,000 up from the end of fiscal year twenty seventeen. This significant increase in backlog was positively impacted by the acquired totals backlog in the Lance camper business. Recreation adjusted EBITDA increased 194% for the quarter to $8,200,000 The expansion in profitability is attributable to higher unit volumes, product mix and continued benefit from ongoing operating initiatives in addition to the results from acquired companies. Looking ahead, the end markets for recreation remain very strong as customer demand across many demographic groups continues to embrace the RV lifestyle. Now we'll turn to our balance sheet.

Total debt at January 3138 was $372,300,000 net of deferred financing costs or 39% of total capital. As a result, we had $143,000,000 available under our ABL revolving credit facility, which was amended to increase its borrowing capacity to $450,000,000 in December 2017. Capital expenditures for the quarter were $13,600,000 compared to $18,100,000 in the 2017. We are now projecting that capital expenditures for the year will be in the range of $40,000,000 to $45,000,000 versus our original guidance of approximately $50,000,000 From a balance sheet standpoint, we still expect to realize improvements in our management of working capital, positive free cash flow and net debt reduction in fiscal twenty eighteen before the impact of any future acquisitions. In addition, we have adequate liquidity, low leverage and access to external markets that will be the fuel to grow for our growth initiatives for the foreseeable future.

Lastly, I'd like to update our outlook for our full year effective tax rate based on our first quarter results. We now expect our full fiscal year effective tax rate to be in the range of 16% to 18%, including the onetime benefit realized in the first quarter. And we expect our normalized rate for the year, excluding this onetime benefit, to be in the range of 24% to 26%. I'll now turn the call over to the operator for Q and A.

Speaker 0

Thank you. At this time, we will be conducting a question and answer session. Our first question is from Jamie Cook from Credit Suisse. Please go ahead.

Speaker 4

Hi, good morning. I guess just a question. Is there any way you can help us with sort of how do we think about the cadence of earnings throughout the year given the weaker first quarter start, which I know you guys had guided to that, but I think people are just trying to get comfortable with how we get to the full year numbers because it implies a pretty significant margin ramp. So any help there would be great.

Speaker 2

Yes. We've talked about that a lot, Jamie. I think some of the issues that we're going to have every single year is about 30% of our earnings are in Q1 and Q2, 70% coming in Q3 and Q4. And you saw that last year and you saw that the year before that when we were putting all the information together for the IPO. It's the nature of what we are.

And I think that you got kind of a double whammy. You've got everything that happens between November and January with holiday periods, hunting seasons, vacations, catch up. And then you also have kind of the timing of when our orders come in during the year. It is what it is. I mean, it's I think probably the right percentage, and I don't see that changing anytime soon is a thirtyseventy split.

Look at the 30% in the first two Qs and the rest in the other quarters. We actually talked about several months ago, should we change our fiscal year to kind of spread this thing out a little bit. But it is what it is and it's going to be that way for a long time, I'm afraid.

Speaker 4

Okay. And then sorry, just within commercial, you called out onetime charges associated with improvements at the shuttle bus facility. Can you just help us can you just quantify how big that was?

Speaker 2

Yes. Dollars wise, what was it? Dollars About About million dollars it was for our inlay city operations in Michigan. One of the things we're doing with shuttle is trying to really improve our efficiencies, get our costs down. The market price is the market price, and it's a challenging market for us.

But we have to make sure that we do what we can to get our costs down. And the quarter was really unusual. Actually, shuttle bus was up. The usual good performers of school bus and transit buses were the ones that kind of let us down in the first quarter and it was really a little bit of a soft quarter for school bus. But transit buses, if you miss four or five transit buses in a quarter, that's big dollars, and that really affected the commercial performance of the quarter.

But we're going to keep pushing on shuttle. We're dedicated to make sure that, that thing gets very profitable for us.

Speaker 4

Okay. Thank you. I appreciate it. I'll get back. Thank you.

Speaker 0

Our next question is from Andy Casey from Wells Fargo Securities. Please go ahead.

Speaker 5

Good morning. Thank you. I got a question back in line with Jamie's question. We're starting to see some lengthening in order to delivery lead times from some of your chassis providers. First, are you seeing that?

And then if so, does that further impact the timing of how you expect to achieve the updated 2018 goals?

Speaker 2

Yes. It's a current situation that we hope does not get worse. But for instance, Mercedes Sprinter chassis have not been EPA approved yet, so there's a bit of delay in receiving those. We do work off a backlog of chassis. So in the near term by near term, I mean, our second quarter, we're fine.

But as you can imagine, with our back end loaded plan, we need a lot of chassis in here in Q3 and Q4. So we got time to react to it. But there's noise with GM also. There's a little bit of noise with Ford. It's something that we manage on a regular basis.

But we've got some time to react and we plan to. But right now, we don't see that that's going to negatively impact our fiscal year.

Speaker 5

Okay. Thanks, Tim. And then in the context of higher input costs that could affect some of the component purchases and even some of those chassis purchases, can you kind of remind us about how you price your products? And if you're expecting what appears to be a rising material cost environment to impact your ability to achieve the margin expectations, not only this year, but next year?

Speaker 2

Yes. Obviously, a top question of everyone in the last few days. Steel and aluminum, which obviously are the topics of the day, are less than 5% of our direct spend. And the vast majority, I mean, very high percentage of what we buy in both steel and aluminum, we get from U. S.

Suppliers. So our exposure to foreign suppliers of steel or aluminum percentage of our total material cost is very low as well. And the other plus that we do have is we've got aluminum pricing locked in for the remainder of this year. And we've been doing that the last couple of years on aluminum just because we wanted to make sure that we didn't succumb to some volatility there. The bigger issue is the one that you really addressed, so that's the chassis.

We will be extremely diligent on chassis costs as we move through fiscal twenty eighteen. That's where we're going to see the issues. The good news is, I think, is we can stay ahead of those. We purchased far enough in advance. And if you understand how chassis work, it's kind of a it's a pool effect that we buy into.

So we have warnings of any cost adjustments on chassis well in advance of of what's happening. But we're going to be diligent. That's where we're going to see it, if we see it anywhere. And we want to make sure that we stay ahead of that game.

Speaker 0

Okay. Thank you. Our next question is from Jerry Revich from Goldman Sachs. Please go ahead.

Speaker 6

Hey, everyone. This is Ben Brood on for Jerry. I was just hoping you guys could give us an update on your shuttle bus platform strategically from a high level. Just wondering how the industry has been doing with your higher end product and if you guys are making any strategic decisions to go down market?

Speaker 2

We're definitely not going down market. That's not where our strength is. Our strength is building fully crash tested quality shuttle buses, and that's what we'll continue to do. The market is strong. I mean there's not been any pullback in the shuttle bus market whatsoever.

What as I mentioned on the previous question, the answer to the previous question is we just have to make sure that we work diligently to get our costs in line to make sure that we can continue to sell to the customers that want to buy a quality shuttle bus and make the margins that we expect to make. But we're not making any dramatic changes to our product offerings in that area with the exception of if we come out with a low floor option, which is what we did recently on school bus, that also has an opportunity in commercial bus, in shuttle bus. Those things we'll continue to do. But as far as moving down market, we have no intention to do that.

Speaker 6

Got it. And then within F and E, I was hoping to get some more color between ambulance and fire engine pricing. Can you kind of give us some color on how those two are shaping up within the segment?

Speaker 2

Prices go up every year on both segments. And it's really tied to our material cost increases, our labor increases, that sort of thing. I think we're very pleased with the disciplines within the fire and emergency markets. I think they're mature markets with the ability to adjust to cost increases as we do have them. And so that continues.

And that will continue to go at a pace that makes sense to our end users. They understand when we have those price increases. But it's a very stable, mature industries that we work in, and you can see that obviously from the results as well every quarter.

Speaker 6

Got it. And just to maybe get a little bit more granular, can you maybe quantify or just give magnitudes of which of the two is seeing stronger pricing? I would just guess with the consolidation we've seen in Fire that Fire would be probably outgrowing or outperforming ambulance from a pricing perspective at least?

Speaker 2

No, they're actually pretty comparable. And I think we're at that point now where we've got, I think, the correct pricing levels in the marketplace. So the pricing increases you're seeing in Fire and Emergency are more inflationary related to material and labor. We're seeing an advantage from our standpoint though is and we have three fire apparatus companies and we can get sourcing benefits from a larger scale that also helps improve our margins without really doing anything abnormally large on pricing. But pricing is right now more at an inflationary level.

Speaker 6

Got it. Thank you.

Speaker 0

Our next question is from Mig Dobre from Robert W. Baird. Please go ahead.

Speaker 7

Yes, good morning everyone. Tim, I'm still struggling a little bit to be honest with you with the earnings progression here and how we're supposed to be thinking about it. You're talking about a thirtyseventy split due to seasonality. If I look back at the last three years, you've typically been around 35% to 38% of full year earnings or EBITDA that was generated in the front half and now we're only looking for 30. So I guess two things, can you maybe delineate some of the one time costs or some of the unique items that impacted Q1 that will go away on a go forward basis?

And then also maybe help us understand why there seems to be a shift in the seasonality of these earnings because even if we're talking about 5%, it's still a meaningful number moving from the first half to the second versus at least observed history?

Speaker 2

Yes. And that's probably the float that you're probably going to see, 30,000,000 to $35,000,000 It's immaterial, but it's not huge either, I guess. We did have some unusual things in the first quarter that we somewhat anticipated and budgeted for. And that's why when we said that we hit our number, we did. But we have obviously, the costs of closing out the JV, the costs involved in the Daimler situation, those things are not free to accomplish those.

We had the costs for the Lance acquisition. We had some carryover costs from the acquisition of AutoAbility and what we were doing with some of the things on-site entry. So it was a tough quarter, I mean, but we anticipated that. We had some unusual onetime expenses that went into the quarter that last year were in the second quarter. And that's why we kind of grew Q1, Q2 because they're equally kind of challenging quarters to make sure that we hit our numbers.

But we hit where we thought we were. I think the surprises in the quarter, the two biggest surprises that had the most meaningful impact was not shipping the transit buses that we wanted to, and that was basically due to a customer that didn't show up to do their inspections, and we can't ship if they don't inspect and sign off on the product. And we lost loss. We had to move a handful of large aerials out of Ferrara into Q2. Those two things by themselves can swing EBITDA by $1,000,000 to $1.5 in a quarter.

So those were all big challenges in the quarter. And I will tell you that we didn't really anticipate those. We really expected that we would be able to ship to our targets for the quarter. Other than that, the additional costs and expenses, all we had all budgeted those in. And we actually made a little extra money in some of the other areas to kind of mitigate to some extent the shift in timing of the shipments at Ferrara and E And C.

I think a 5%, like I said, I don't want to say it's not a significant number, but that in a full year annualized basis probably isn't that big of a deal between first half, second half of the year, especially when the purchasing is pretty well set, but not completely cast and concrete.

Speaker 7

Well, right. I can appreciate that, but hopefully you can appreciate my perspective here. If I'm looking at your implied guidance, it implies about $42,000,000 of adjusted EBITDA in the second quarter at the midpoint. So not knowing precisely what the revenue would be in the quarter, I'm guessing here that the margin would be call it six point five, six point four, 6.5 something like that. Essentially this would be the second quarter in a row where we're really not seeing a lot of margin expansion.

And I get it that we're going to get it in the back half. But I think what we're all trying to understand is getting a level of comfort as to what is it that prevented it from happening in the front half and what changes in the back half to allow us to get there. And that's it for me. Thanks.

Speaker 2

Well, first of all, you've got the numbers right, Mig. So it is what it is, I guess, that standpoint. It's a challenging story. I think we understand that. It's in many respects, it's kind of a leap of faith.

And the last two years, we've demonstrated that the third and fourth quarters are going to do what they're going to do. But it's a challenging story. I mean, the first half to have that differentiation between a first second half of the year is highly unusual, incredibly unusual. And it's just kind of the nature of our portfolio today. And it's going to stay that way until we do something different, I think, far as break up the mix, add a fourth leg to the stool that may not have the seasonality that we've got with our current portfolio.

Speaker 0

All right. Thanks, Tim. Our next question is from Nicole DeBossey from Deutsche Bank. Please go ahead.

Speaker 8

Yes, thanks. Good morning, guys.

Speaker 7

Good morning. So

Speaker 8

I guess my first question is around the recreation backlog. So I know that a lot

Speaker 3

of the

Speaker 8

growth that you saw in the backlog during the quarter came from the acquisitions that you've done. Could you just talk a little bit about what the backlog would have looked like without acquisitions? Like is it still growing substantially?

Speaker 2

Yes. It's that's kind of a hard one. That's the discussion we've been having. We had at our Board meeting yesterday. We're really trying to determine what's organic versus inorganic, and backlog is a great example of trying to differentiate.

We've doubled our backlogs at Midwest and Renegade. We actually had, believe it or not, in a short ownership of only a couple of weeks, we actually positively affected backlog at Lance. And the question really is, what would those have been without REV? And the answer is there would have been something there, but it would have been would they have doubled their backlog? Absolutely not.

So how much is organic versus inorganic? And then when you look at our traditional business, which obviously is purely organic, it was up. It was up significantly in the quarter. And that really had to do, I think, with some of the new products that we introduced back in September and some of the orders that we took after the Louisville show the first week in December. But we're up across all of RV.

We're up significantly in our traditional A business. And really, these acquisitions have really loaded the backlog in nicely as well. They all rolled into the first quarter with a pretty good head of steam, and we just took it up even higher.

Speaker 8

Okay. Thanks, Tim. And then I guess same segment, Recreation, that was an area where margins looked pretty good this quarter. So I guess can that level of year on year improvement be sustained beyond 1Q? Or was there anything that drove the margin improvement in the first quarter that isn't sustainable in 2Q and beyond?

Speaker 2

Yes, sustainable and improving. The blocking and tackling, particularly in Decatur, is starting to pay off. We've really focused on the three areas and let me just step aside for a minute and say the three areas where we're underperforming on margin are Decatur, our mobility bands and shuttle bus. And we are absolutely laser focused on those three areas to get those margins up. So not only is it sustainable, we hope to show you some improvement as we continue to move through to the end of the year.

Speaker 8

Great. Thanks. I'll pass it on.

Speaker 0

Our next question is from Charlie Bradley from SunTrust Robinson Humphrey. Please go ahead.

Speaker 9

Hey, thanks. Good morning. Hey, Tim, just to clarify on the delayed shipments in Ferrara, the aerials and the transit buses, have those slipped into Q2 or beyond?

Speaker 2

No. Q2 the sad part about the story is they literally shipped a couple of days after the end of Q1. So they're gone. They're shipped. They're already in the bank.

So it was really you always hate to use timing as an excuse, but when we have to get sign off from dealers and customers, kind of we really have to manage that precisely and we missed it, but they're gone.

Speaker 9

All right. Thanks. And just on Fire and Emergency I'm sorry, on Recreation, you had Renegade you broke it out the acquisition impact in the Q. Renegade is in there for two months incremental and then obviously the January is not incremental because when you owned it. So just I'm trying to if I can back off the other two, I'm trying to to an organic growth number in the quarter for recreation, but I obviously don't have the monthly split by Renegade.

Can you give us a sense of what the organic number might look like for recreation in the quarter?

Speaker 2

Yes. Well, to give you just an example on Renegade since you used it, we effectively doubled the shipments in January from a year ago for Renegade. That's the kind of momentum that we've got built up with that new asset. These new assets that we're picking up are just amazing. We have probably did not fully appreciate the value of bringing them under the REV umbrella and what that really meant to us.

But Renegade, the shipments were double January to January. So that's kind of the momentum you're going see going forward. Thanks.

Speaker 0

Our next question comes from Courtney Yakinoffis from Morgan Stanley. Please go ahead.

Speaker 10

Just piggybacking on that question, just wondering if you could break out the organic growth for us in F and E this quarter?

Speaker 2

Yes. It's we're not trying to be evasive. It's really hard, primarily due to the fact of where do you do it? I mean, do you start? How do we do we just take eOne as our organic growth?

Or do you add Farrar in there and KME on a basis? We're kind of really struggling. And again, we're not trying to be evasive, we're really trying to figure that out, but it's really, really hard to do. Once these things get loaded in, we integrate immediately. So the two biggest things that happen with an acquisition is we start getting our sourcing in there immediately.

So and these are meaningful dollars of additional EBITDA. So how much of that would have happened without them joining REV? Well, we can guess, we can give you an estimate. Where would the backlogs be? The fact that they're part of REV now, it really is one of those things where they've gotten the advantage of being part of a bigger company.

So it's again, we're not trying to be evasive. We're just kind of having a hard time getting our hands around it. It all kind of starts to meld into all the numbers that we do have.

Speaker 10

So do you have it on a top line basis though, not necessarily on

Speaker 8

EBITDA It's

Speaker 2

actually it's the same thing. We spent an hour and a half of the board meeting talking about this subject because the board is asking the same types of questions. And we really we're not again, where you start, where do you stop, where does the top line change and how much of that was part of the REV umbrella versus being separate. I mean, we've picked up new business, new accounts at both KME and Ferrara that they didn't sell to before. Would they have sold to them with or without REV?

I'd argue they probably wouldn't. But they may say they did. E1 has steady, steady ship growing organically quarter over quarter, year over year. All three fire apparatus businesses that we have right now are sold out through the end of our fiscal year. So that's just the demand that we do have.

Again, Courtney, not trying to be evasive. We had a big discussion about that at the Board level yesterday and we start to lose track of we start to guess, we don't want to guess. We can estimate, but even then, where do you cut it off and where do you say that this was because of this or because of that.

Speaker 10

Okay, fair enough. And then just on the 30%, 70% split, is that applicable to all three segments? Or would you expect any differences between the three?

Speaker 2

No, there's differences. The buying seasons are a little bit different, but the buying seasons are set. And let me give you an example so you can maybe understand that. There's effectively three buying seasons for RV. It's September at the open house in Elkhart.

It's Louisville, and that's in the December, and that's just kind of carryover from the Elkhart open house. And then you've got April, the new basically the new year introduction for the new coaches across the industry. And so you've got those are the purchasing cycles for RV. And so it gets into its own cadence. Fire really starts to happen in a very meaningful way in the calendar third quarter, which is really kind of in our fourth quarter and it really has to do with when budgets are approved with municipalities.

And they're not all the same, so there's little bit of a different cadence there. School is very definitive. I mean, we're just going into the buying season now for school. And the harder part about school, we're here in March and the orders will start happening in April and they expect their school buses on the ground by the August. So that's a very definitive period of time as well.

They're all different. Ambulance tends to be a little bit more steady than fire, just for the fact that the expenditure is not as large as a fire apparatus. So that tends to be a little bit more steady. But then too, there's different budget periods of time and some of the big municipalities make their commitments when they've got their new budgets approved. The other dynamic, not to confuse things, but we're really trying to convince municipalities not to buy, but to lease versus buying, which was kind of spread that out and maybe help us out with some of the seasonality that we do see with some of these things, including fire trucks.

The only thing about fire though is these backlogs are quite long because the demand is high. So if the demand wasn't as high as what it was, we could level that off. That would be helpful to get out of our thirty-seventy split. But you throw all that in the pot and it comes out to a thirty-thirty five split, as Mick said, it could be as high But thirtyseventy split on any given year and they're all different purchasing cadences that just kind of summarize down to that thirtyseventy split.

Speaker 10

Thank you.

Speaker 0

Our next question is from Andy Casey from Wells Fargo Securities. Please go ahead.

Speaker 5

Thanks for taking my follow-up. Got a question on the Q1 $72,000,000 operating cash outflow. Within that, you had some kind of unusual variances on the working capital side. And a big portion of that was driven by a $73,000,000 accounts payable outflow. Can you provide a little bit more color on that?

And then I'm just wondering if you expect positive operating cash flow in Q2?

Speaker 3

Yes. Hi, Andy. This is Dean. Yes, the timing of our year end change, as you know, we changed our year end from the last Saturday to the calendar quarter end. So that did impact the timing of payments for accounts payable this year, one time item and that won't recur obviously as we go forward.

So that was the primary reason. And regarding second quarter, second quarter is still a use of cash. We're improving on our working capital metrics, but I wouldn't say we're going to have a positive free cash flow or operating cash flow in the second quarter. We generate most, if not all, of our cash flow in the second half at this point.

Speaker 5

Okay. Thanks, Deane. Would you expect to take out some short term debt or do you have enough cash on hand to support your activities in Q2?

Speaker 3

We have plenty of liquidity on our ABL to support our activities in Q2.

Speaker 0

Okay. Thank you. Thank you. This concludes the question and answer session. I'd like to turn the floor back over to management for any closing comments.

Speaker 2

Well, thanks again everyone for joining us today. We are where we want to be. We're right on track with our internal plan. We've got the highest backlog this company has seen in our short life. And all of our end markets remain very strong, very steady, very strong with nothing really we think is going to deter those as we move through 2018.

We're on track for our plan. We're on track for our guidance. And we really fully expect to continue to perform and meet that guidance. Thanks again for joining us. I guess we'll be talking to you again in early June.

And in the meantime, feel free to call us with any other questions.

Speaker 0

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