REV Group - Q3 2024
September 4, 2024
Transcript
Operator (participant)
...Welcome to REV Group's third quarter twenty twenty-four earnings conference call. At this time, all participants are on a listen-only mode. A question and answer will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Drew Konop. Thank you. You may begin.
Drew Konop (Head of Investor Relations)
Good morning, and thanks for joining us. Earlier today, we issued our third 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 can cause the 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 earlier today 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 the call today to a quarter or a year are 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 to slide three, and I'll turn the call over to Mark.
Mark Skonieczny (CEO)
Thank you, Drew, and good morning to everyone joining us on today's call. Today, I will provide an overview of the operating, commercial, and financial highlights achieved within the quarter, then move to the quarter's consolidated financial performance. We are pleased to have delivered another strong quarter of operating results that reflect continued success and execution of our strategies to improve the performance of our municipal backlog businesses while managing the impact of a challenging environment in our cyclical businesses. Double-digit margin performance has been the target for each of our businesses since I arrived in twenty twenty, and I applaud the various teams that contributed to the specialty vehicle segment, achieving an Adjusted EBITDA margin of 10.3% in the third quarter.
Within the quarter, our ambulance business continued to benefit from the momentum it has built over the past several quarters, with programs designed to increase line rates and improve efficiencies. The fire group is on a similar journey to drive operational improvements, and their efforts led to the Specialty Vehicles sequential adjusted EBITDA increase for the quarter. Fire continues to pursue a strategy of simplification, along with the development of manufacturing Centers of Excellence designed to eliminate waste, increase throughput, and generate operating efficiencies. As we discussed last quarter, we have leveraged Spartan Chassis production from our Center of Excellence in Michigan across our network of fire plants and brands to drive efficiency and cost effectiveness.
In addition, we have a dedicated line at our Spartan Emergency Response facility in South Dakota to produce S180 fire apparatus, which has enabled our brands to deliver semi-custom fire apparatus at accelerated lead times. Furthermore, the integration of sales, inventory, and operations planning, or SIOP, across the group has resulted in a dual benefit of contributing to improved throughput, as well as a year-over-year reduction of fire divisions inventory balances. Ongoing efforts to create greater alignment between the fire group's resources and manufacturing footprint, in addition to these improvements to our upfront processes, have resulted in improved completions of trucks. As I've stated in the past, each unit we ship today is worth more than a unit shipped yesterday. Increased line rates have contributed to greater profitability throughout the year as we gain efficiencies and reduce the number of aged units from backlog.
We entered this quarter with a robust $4.4 billion consolidated backlog, led by the strength of inbound orders for fire and emergency vehicles. Specialty Vehicle segment backlog of $4.1 billion increased $386 million or 10% as compared to last year. The prior year's backlog of $3.7 billion included $421 million of backlog attributed to the bus businesses. Adjusting for the divestiture of Collins and winding down of ENC, which had largely exhausted its backlog actually in the third quarter, segment backlog increased $807 million or 27% versus the prior year quarter. Year to date, the combined book-to-bill of the F&E businesses was 1x on a unit basis, driven by both increased shipments and a normalization of demand. This is in line with the guidance we provided in December for fiscal 2024.
The benefits of our pricing strategy delivered a book-to-bill ratio of 1.3 times on a revenue basis in the legacy fire and emergency businesses during the same period. The duration of backlog varies by business and the specific unit type, but generally remains in the range of two to three years. The backlog is elevated versus historical norms, but is in line with our industry peers given the current demand environment. Prior to 2020, the typical delivery time for a pumper unit was approximately 9-12 months, while an aerial ladder truck would be approximately 12-15 months. The ambulance group had historically operated with less visibility and backlog of three to six months.
It remains our expectation that industry demand will continue to normalize, which, combined with our successful increase in line rates, is expected to deliver a more balanced supply and demand dynamic as we focus to achieve best-in-class delivery times. The recreational vehicle end market remains challenged as discretionary purchases for such items as RVs have been delayed by consumers. According to SSI data, industry-wide retail sales of Class A, Class B, and Class C units declined 15%, 20%, and 4%, respectively, over the trailing twelve months ended in June versus the prior year period. Despite these challenges, the data shows that retail sales of our motorized brands have outpaced the industry across these categories over the same period.
We are looking forward to showcasing the quality and innovation of our model year twenty twenty-five units at the Hershey RV Show and Elkhart Open House in September. The fall shows provide insight into customer and dealer sentiment, and the interactions and feedback are expected to provide an early read on calendar year twenty twenty-five demand. After September, the next big indication of activity will be in January at the Tampa RV Show, which historically sets the pace for the year's retail demand. Until we gain greater clarity on end market demand, we will continue to work closely with our dealers to focus on production of units that align with consumer preferences, while we aggressively address our cost structure.
I would like to acknowledge the hard work by the RV segment team, which has continued to work tirelessly to navigate the market challenges and manage costs, resulting in incremental margins of 14% year-over-year. The wind down of production at our ENC Municipal Transit Bus business in Riverside, California, is progressing ahead of schedule, with the last units expected to be completed within the fourth quarter. I would like to thank all our dedicated employees, as well as our suppliers and channel partners, that have made this difficult process an operational success by delivering quality buses to our customers while exceeding the expected timeline. With the completion of the final units, we expect to realize remaining net working capital benefit within the fourth quarter, and we will proceed with the sale of ENC or its assets when the wind down is complete.
Our balance sheet and financial position continued to strengthen during the quarter. Actually, in the third quarter, net debt was $165 million, and our net debt to trailing twelve-month Adjusted EBITDA ratio was just below 1x leverage. Actually, in the year, we expect to maintain leverage less than 1x. Over the years, we have been disciplined and nimble in our capital allocation philosophy, using our available capital to invest back in the business, pay down debt, buy back shares, and pay both regular and special dividends. We have regular and ongoing discussions regarding our go-forward capital allocation priorities, and we'll communicate an updated capital allocation strategy when we share our intermediate financial targets later this year. Turning to slide 4, consolidated net sales of $579 million decreased $101 million compared to the third quarter of last year.
In the prior year, reported sales included $46 million attributable to Collins Bus, which was divested in the first quarter this year. Adjusting for the sales impact of Collins, net sales decreased $55 million or 8.6% due to lower sales in the recreational vehicle segment and fewer sales of terminal trucks, partially offset by increased sales in the fire, emergency, and municipal transit bus businesses. Consolidated Adjusted EBITDA of $45.2 million increased $5.8 million compared to the third quarter of last year. Included in the prior year reported Adjusted EBITDA was $9.2 million attributable to Collins Bus, resulting in an increase of $15 million or 49.7% when adjusting for the divestiture.
The increase was driven by the fire, emergency, and the municipal transit bus businesses, partially offset by lower earnings in the terminal trucks business and recreational vehicle segment. Fire and emergency results benefit from higher volumes, the operational improvements mentioned earlier, and price realization. The fire and emergency results demonstrate the team's success in offsetting the increased costs of doing business through operational improvements, allowing the businesses to maximize the pricing opportunity within backlog. Please turn to slide five, and I'll turn the call over to Amy for detailed segment financials.
Amy Campbell (CFO)
Thank you, Mark. Specialty Vehicles' third quarter segment sales were $432 million, a decrease of $34 million compared to the prior year. As Mark mentioned, the prior year quarter included $46 million of net sales attributed to Collins Bus. Excluding the impact of the Collins divestiture, net sales increased $12 million or 2.8% compared to the prior year quarter. The increase in net sales was primarily due to price realization and increased shipments of fire apparatus, ambulance units, and municipal transit buses, partially offset by lower shipments of terminal trucks. The legacy fire and emergency businesses delivered year-over-year increases in unit shipments and revenue from both the fire and ambulance groups. Unit starts, completions, and shipments remain at or near historic highs, which has reduced the number of aged units and improved the overall mix of the backlog.
Terminal truck sales were lower than the previous year, which was consistent with the expectation provided in our update to full year guidance shared during the second quarter call. The fourth quarter is expected to be the last quarter of difficult year-over-year comparisons for the terminal truck business, and accordingly, we don't anticipate singling out its performance after we exit this fiscal year. Specialty Vehicle segment Adjusted EBITDA was $44.3 million in the third quarter of 2024, an increase of $14.6 million compared to $29.7 million in the third quarter of 2023. Adjusting for nine point two million of Adjusted EBITDA attributed to Collins Bus in the prior year, third quarter earnings increased $23.8 million year-over-year, or 116%.
The increase in Adjusted EBITDA was primarily due to increased performance in the fire, ambulance, and municipal transit bus businesses, partially offset by lower Adjusted EBITDA from the terminal trucks business. Higher fire and emergency contribution was driven by increased unit shipments versus the prior year and greater price realization. Improved municipal transit bus contribution versus the prior year was primarily related to favorable mix, price realization, and lower labor and operating expenses as the wind down progressed ahead of schedule. Lower terminal truck contribution was related to soft industry demand. Today's update to the consolidated outlook anticipates continued fire and emergency sales and earnings momentum, partially offset by continued end market softness in the terminal trucks business, and as mentioned earlier, the shipment of the final ENC buses within the fourth quarter.
We expect the momentum in F&E to result in modest sequential revenue growth and a slightly higher specialty vehicles margin as we exit the year. On slide 6, Recreational Vehicle segment net sales of $147.4 million decreased $67.1 million, or 31% year-over-year. The sales decline is primarily the result of lower unit shipments in all categories versus the prior year, as well as increased discounting and an unfavorable mix of lower priced units within certain businesses. Sales within the quarter were lower than our expectations, as dealers remained hesitant to replenish inventory and have deferred the delivery of model year 2025 orders in certain categories. Recreational segment Adjusted EBITDA was $9.4 million, decreased $9 million or 49% 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 cost reductions that were executed to align fixed and variable costs with the current level of demand. The decremental margin on lot sales of 14% year-over-year and 9% sequentially, demonstrates the RV team's efforts to aggressively contain costs and manage through this difficult period of customer demand. Recreation segment backlog of $240 million at quarter end, decreased $168 million or 41% versus the prior year. The decrease is primarily due to reduction against backlog, lower order intake, and order cancellations over the trailing twelve months. Some dealers, as I mentioned earlier, opted to defer delivery of orders within the backlog.
However, we are encouraged by the improved health of our dealer inventory, which has declined 20% since the beginning of the calendar year, as retail sales outpaced our wholesale shipments. Given the current level of retail demand, dealer reluctance to restock channel inventory, and uncertainty surrounding interest rates, we expect fourth quarter sales, earnings, and margins to be sequentially about flat. Now, turning to slide 7. Trade working capital on July thirty-first was $323 million, an increase of $4 million, compared to $319 million at the end of fiscal 2023. The increase was primarily a result of lower customer advances and lower accounts payable, partially offset by a decrease in accounts receivable and inventory.
As anticipated, customer advances have declined year to date as units are shipped from the backlog, consuming deposits previously received, while incoming deposits have slowed in today's higher interest rate environment. However, for the full year, we expect inventory reductions to offset customer deposit reductions, largely this driven by shipments from finished goods in the fourth quarter. Year to date, cash used by operating activities was $15.2 million. Adjusted free cash flow within the quarter was $29.5 million, including $5.9 million spent on capital expenditures. Year to date, adjusted free cash flow was $16.5 million, which excludes approximately $54 million of tax and transaction costs related to divestiture activities that are presented within cash from operations, but offset by gross cash proceeds included in the investing section of the statement of cash flows.
Net debt as of July 31st was $164.5 million, including $50.5 million of cash on hand, compared to net debt of $128.7 million as of October 31st, 2023. We declared a regular quarterly cash dividend of $0.05 per share, payable on October 11th to shareholders of record on September 27th. At quarter's end, the company maintained ample liquidity for strategic initiatives, with approximately $262 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 continued end market weakness in the Recreational Vehicle segment. Today's update for top line guidance is a range of $2.35 billion-$2.45 billion.
Adjusted EBITDA guidance is $155 million-$165 million, or $160 million at the midpoint, which reflects an improvement of $4 million at the low end of the range to account for the third quarter performance. The update to guidance today includes an approximate $50 million total revenue reduction related to softer than expected RV demand and its resulting earnings impact as we continue to manage to a 15% decremental margin with aggressive cost actions. However, we expect that the lower RV performance will be more than offset by improvements in the fire and emergency businesses. Adjusted net income is expected to be in the range of $76 million-$89 million, and net income in the range of $226 million-$240 million.
Expectations for adjusted free cash flow, full year capital expenditures and interest expense remain the same, with adjusted free cash flow in the range of $61 million-$72 million, full year capital expenditures in the range of $30 million-$35 million, and interest expense is expected to be $26 million-$28 million. Finally, as you may recall, we provided intermediate financial targets at our Investor Day in April 2021. We will be providing updated intermediate financial targets and a refreshed capital allocation philosophy, along with our fiscal 2025 outlook during our regular fiscal fourth quarter earnings call in December. We plan to extend the length of that call while opening the line to analysts and investors. Consistent with our normal outreach, we will also be available for follow-up calls to address additional questions or clarifications. Thank you again for joining us on today's call.
Operator, we would now like to open the call up for questions.
Operator (participant)
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Our first question comes from Jerry Revich with Goldman Sachs. Please proceed with your question.
Jerry Revich (Analyst)
Yes. Hi, good morning, everyone, and nice performance in Specialty Vehicles. Amy, I'm wondering if we could just unpack the fire and emergency portion of the performance. What was the bridge for the year-over-year margin improvement that you saw? How much was pricing? What did you see from inflation and productivity? Can you just unpack the margin bridge for F&E specifically, please?
Amy Campbell (CFO)
Yes, thanks, Jerry. Thanks for the nice comments. So if you look at legacy F&E specifically, you know, we saw revenue grow kind of low to mid-teens, and about 60% of that revenue growth was price mix. About 40% of it was driven by volumes. You know, in the quarter, I would say that we largely offset, you know, inflationary costs, and so we didn't specifically give EBITDA margins in the quarter, but saw pretty significant year-over-year EBITDA margin growth in the legacy F&E business, and also saw, you know, a little over a hundred basis points in EBITDA margin growth from the second to the third quarter.
Jerry Revich (Analyst)
Thank you. And in terms of the comments that you folks provided on book-to-bill on units versus revenue, the 30% difference, can we peel back how much of that 30% difference is content versus just pure price? In other words, what should we be thinking about as the potential higher cost of that content that you folks are seeing? Because I think there are two levers, right? One is absolute price, and two, I think you folks are driving a shift towards a more custom of the high end of the range. But please correct me if I'm wrong on that.
Amy Campbell (CFO)
Yeah, sure. I don't know that I have the breakout. So, you know, we talk about units for legacy F&E, the unit book-to-bill at about, you know, one times, and the dollar book-to-bill at one point three times. You know, with fire a little ahead and ambulance kind of going through more of a normalization period. Breaking out that one point three times in F&E between what's price and what's content, you know, I'd say while we certainly do have a lot of custom units, we're also introducing, you know, we talked quite a bit about Mark did again this morning, the S180, which is more of a semi-custom unit.
I mean, I guess what I would say is I don't have that 1.3 times book-to-bill in terms of revenue broken out between content and price.
Jerry Revich (Analyst)
And can I sneak in one last one on RV? Can you just give us an update in terms of absolute units of inventory versus prior peak and versus prior trough with the revenue reduction here? I guess, what's our level of confidence that we've captured the move in inventories that we typically see?
Amy Campbell (CFO)
Are you speaking specifically to dealer inventories, Jerry?
Jerry Revich (Analyst)
Yes. Yeah, thank you, Amy. RV dealer inventories.
Mark Skonieczny (CEO)
Yeah, as we said, the dealer inventory is down 20% from the calendar year. I think, we're getting more closer to the pre-COVID type of levels at our inventory levels. We're feeling good about the health of that inventory, Jerry. It's just they've been reluctant to replace orders. So we're seeing a nice, like we talked about, retails are definitely outpacing wholesales in the current market. And so it's a matter of just that's why we highlighted a couple shows. We're anxious to see what the consumer appetite is, and then coming out of those, what the dealer placements would be.
In the last couple of months, dealers have been waiting, so the retails are selling nicely, but wholesales have been down and, you know, we've been doing shutdowns as we talked about on the comparable calls to manage our costs there. So it's really a wait to see in-
Jerry Revich (Analyst)
Thank-
Mark Skonieczny (CEO)
September once we start shows.
Jerry Revich (Analyst)
I appreciate it, Mark. Thank you. Thank you both.
Mark Skonieczny (CEO)
Yep. Thanks, Jerry.
Operator (participant)
Our next question comes from Angel Castillo with Morgan Stanley. Please proceed with your question.
Angel Castillo (Analyst)
Hi, good morning, and thanks for taking my question. I was hoping we could expand a little bit more on the margin conversation, particularly as we look forward. I think you noted, particularly within specialty vehicles, you expect slightly higher margins. Can you just put a finer point on kind of the cadence and maybe, you know, quantify how much of margin expansion you anticipate here in the next quarter? And as we think about, you know, maybe the early days of fiscal year twenty-five, I understand you're not going to give a an outlook at this point, but just any kind of sense based on what you have in your backlog, you know, what is kind of implied in terms of, margin expansion for the next few quarters?
Amy Campbell (CFO)
Yes. Thanks, Angel. So I think if you look at the third to fourth quarter sequentially, you know, and I referenced, we expect to see moderate revenue and EBITDA growth in terms of EBITDA dollars. You know, I think of that in terms of kind of low single digits type of growth, and with EBITDA margin %, up just slightly. So that's with the double-digit margins for specialty vehicles exiting twenty twenty-four. You know, our expectation is that we would continue that trend as we move into and hold those double-digit margins in twenty twenty-five.
Angel Castillo (Analyst)
Got it. That's helpful. Thank you.
Amy Campbell (CFO)
Go ahead.
Angel Castillo (Analyst)
No, no, sorry. You go ahead.
Amy Campbell (CFO)
Yeah, and I guess maybe I would add, you know, as we look into twenty twenty-five, what we've talked about in terms of pricing, and we talked about, you know, the nine innings of the game. We're in kind of tier four or five for fire and tier five or six for ambulance, you know, and those are kind of mid-single digit types of pricing increases as we move from tier to tier. And so that kind of 6%-7% price increase on our value-add content next year is what we would be thinking about. You know, and we. So we're not giving twenty twenty-five guidance at this time, you know, but certainly be looking to offset some of our inflationary headwinds as we move into twenty twenty-five.
Angel Castillo (Analyst)
Got it. That's very helpful. And then maybe just to expand on the RV side, can you talk about maybe the discounting? It sounds like the dealer inventories maybe are getting to a little bit of a better place, and we'll get more clarity as we go into some of the shows. But as you think about the step change from maybe 2Q-3Q and the level of confidence that that won't continue, can you talk about maybe some of the discounting or competitive dynamics in the industry, and your ability to kind of outperform that?
Mark Skonieczny (CEO)
Yeah, I think that's some of the things, you know, with the revenue drop, we are participating in the discounting as others have, and that was a driver when you look at our Q3 results. So I think we'll continue to see that in providing discounts as we move forward. But, you know, as the inventory gets healthier, you know, those have definitely dropped sequentially when you talk about industry-wide. So where they started in Q1, Q2, they've come down in Q3, and as the inventory has become less aged, sitting on the dealer lots and the introduction of Model Year 2025 units, the discounting has been reduced on the new units.
It's more the retail assistance that's provided on aged units within the inventory, but with the retails, we're seeing the dealer inventory health is definitely, from an industry perspective, improving.
Angel Castillo (Analyst)
Very helpful. Thank you.
Operator (participant)
Our next question is from Mircea Dobre with Baird. Please proceed with your question.
Mircea Dobre (Analyst)
Good morning. Thanks for taking the questions. So, maybe going back to specialty vehicles, just for my own clarification, I guess, can you remind us, ENC, where we are in the process of winding down that business? Maybe how much revenue you recognize in the quarter from ENC, and-
... my recollection is that there's a EBITDA drag that's associated with ENC as well, that, at least in theory, should be going away in fiscal 2025.
Mark Skonieczny (CEO)
That's right. That's right, Mircea. So it was around $40 million in the quarter. So as we talked about it, we accelerated some of the shipments from Q4 that we expected. The great work that the team did, we were able to produce essentially five months worth of production in three-month period. So I'm very proud of the team. You know, even though we've announced a shutdown, that we've had a very engaged workforce and suppliers and customers there. So we are ahead of schedule from that perspective and expect to, you know, have a complete wind down here within early parts of the Q4.
Amy Campbell (CFO)
I'll just add to what Mark said. I think when you look at EBITDA margins with that pull ahead of five-month sales and some cost actions, and, you know, that we've been able to take in the quarter, as we wind that business down, it's not only ahead of schedule, but it was accretive to the overall EBITDA margins in the quarter.
Mircea Dobre (Analyst)
Oh, okay, so ENC was actually profitable?
Amy Campbell (CFO)
Yes.
Mark Skonieczny (CEO)
Yeah.
Mircea Dobre (Analyst)
Okay. And, you know, in the terminal trucks, I do know that that's been a drag, and you highlighted that for several quarters. I'm trying to understand the magnitude of this drag in terms of what's been embedded in your full year guidance for fiscal 2024. And what's the right way to think about this business beyond 2024? Are we likely to see another step down in production next year? Are we at a trough? And what's going on margin wise at current production levels?
Mark Skonieczny (CEO)
Yeah, we're definitely at a trough, and it's normal in our cycle, as we've talked about previously, Mig, coming into an election year, that's a normal trough in this business. So, you know, we've said that's a mid single digit margin business. You know, obviously COVID, it was double digits, but it's a mid single digit business going forward. EBITDA margin business.
Mircea Dobre (Analyst)
Okay. And we saw that there were some restructuring charges that impacted specialty vehicles. Can you talk at all about what some of the actions were that you took and any savings that would come into fiscal 2025?
Mark Skonieczny (CEO)
No, that was a continuation of the ENC closure, right? So as we're booking restructuring, as people exit the business.
Mircea Dobre (Analyst)
Okay. Okay, so it's all ENC driven. And then lastly for me, in recreation, I guess, you know, one of the things that we talked about in the past was this whole concept of backlog erosion and how eventually that's gonna be reflected in production. You know, your backlog continued to step down sequentially. So I'm sort of curious, do you think that $150 million, roughly, of revenue, can be sustained going forward? Or is it fair for us to expect yet another round of production cuts come the first half of fiscal 2025, if demand simply stays where it currently is, end user demand or sell-through, if you would? Thank you.
Mark Skonieczny (CEO)
Yeah. I would say, Mircea, like I responded to Jerry, it's a wait-and-see here, but definitely we're flexing as much cost to enable us to hold that 6% margin that we delivered. So we are within the month, as we get orders or don't get orders, we do flex our workforce. So I do, like I said in my prepared remarks, I'm very appreciative of the people that we don't have a fixed schedule, right? So people are on a very variable schedule within the business, don't have any backlogs as far as what our work schedules and times that we're taking out. So, you know, we will flex those.
But again, to say, is it one fifty or whatever? You know, it's still too hard to call here, but I can assure you, we are flexing the costs and our production schedule to align with our demand.
Mircea Dobre (Analyst)
Understood. Thank you.
Mark Skonieczny (CEO)
Thank you.
Operator (participant)
As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment, please, while we poll for questions. Our next question comes from Mike Shlisky with D.A. Davidson. Please proceed with your question.
Mike Shlisky (Analyst)
Yes. Hi, good morning. Thanks for taking my questions.
Mark Skonieczny (CEO)
Hi, Mike.
Mike Shlisky (Analyst)
Want to follow up with you on some of your F&E comments. Great to see that you've got, you know, really the whole margins, at least into next year of some of this business, and I'm glad to see you also were able to improve the units coming out this past quarter and for much of the year. I am curious if you just give us an update as to what inning you think you're in, as far as production rates and how much you would be able to, you know, improve the speed of production at this point, versus where you would hope it would be in the, you know, over the long term.
Mark Skonieczny (CEO)
Yeah. Yeah, I think, you know, we're, our goal here, I think from an ambulance perspective, as we've talked about before, they're, they're pretty much at pre-COVID rates, and a little bit higher. So we feel good about where we're at from a production perspective in ambulances. We are looking at, you know, incremental capacity where we can, by adding lines and whatnot, or partial second shifts. But, you know, in fire, I would say we're getting that more stabilized. We still have opportunity, more from an efficiency perspective, Mike, than it is, incremental throughput, so it's just getting more efficient on some more custom units as they're coming through. So I would say it's less a capacity discussion than it is, and a production discussion, just becoming more efficient as we move, more complex units through the plant.
I feel very good that by demonstrating our Q3 where we are at. I think ambulance, like I said in my prepared remarks, continue their momentum that we've seen, and then fire is catching up to ambulance from a throughput as we've expected. So they are on track with what we expected. As Amy just said, we will exit. We obviously exited Q3 at double-digit margins, and we will exit Q4 at double-digit margins, especially vehicle segment.
Mike Shlisky (Analyst)
Okay. Got it. And then, Amy, I think you mentioned in one of the earlier answers to one of the questions about fewer, a little bit fewer custom type trucks and more standardized versions of trucks coming off the line. Could you remind us whether there's a significant margin change or a difference if the mix were to go a lot more towards standardized products? Whether you think you could make it up on the volume side, if there was a large change going over time, as folks want to get their trucks faster or in a more efficient manner?
Amy Campbell (CFO)
Yeah. No, there's not a significant margin difference between the trucks, Mike. And that answer was more, you know, as Jerry pointed -- as Jerry's question was that we're doing more and more custom trucks, and I just wanted to clarify that we're also, you know, we build and design and having good, you know, customer acceptance with this S-180, which is a bit more of a semi-custom truck. But as far as margins go, I think specifically to your question, there's not really a material difference between the trucks.
Mike Shlisky (Analyst)
Okay. Thank you so much. I'll leave it there.
Mark Skonieczny (CEO)
Okay. Thanks, Mike.
Operator (participant)
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
