Executive Summary / Key Takeaways

• REV Group is executing a strategic transformation, streamlining its portfolio by exiting non-core bus businesses and pursuing the sale of its non-motorized RV segment to focus on higher-margin, scalable specialty vehicles and motorized RVs.
• Operational excellence initiatives, particularly within the Specialty Vehicles segment (fire and ambulance), are significantly improving manufacturing throughput, driving revenue growth, and expanding Adjusted EBITDA margins to multi-year highs.
• A robust Specialty Vehicles backlog provides substantial revenue visibility, underpinning confidence in future performance despite cyclical pressures in the Recreational Vehicles segment and potential tariff headwinds.
• The company is demonstrating disciplined capital allocation through share repurchases and increased dividends, supported by strong cash flow generation and a flexible balance sheet.
• Updated fiscal year 2025 guidance reflects solid first-half performance and confidence in operational improvements largely offsetting anticipated tariff impacts in the second half, signaling continued earnings growth.

Setting the Scene: A Specialty Vehicle Manufacturer in Transition

REV Group, Inc. stands as a prominent designer, manufacturer, and distributor of specialty vehicles and related aftermarket services, primarily serving the North American market. Its diversified portfolio caters to essential public services like ambulances and fire apparatus, commercial infrastructure needs such as terminal trucks and industrial sweepers, and consumer leisure through recreational vehicles. The company operates through a collection of well-established brands, many of which hold recognizable positions within their respective industries.

The company's journey, initiated through a private equity acquisition in 2006, has been marked by strategic growth via acquisitions, building a broad manufacturing footprint and leveraging regional expertise. More recently, REVG has undergone a significant transformation, focusing on operational efficiency and portfolio optimization. This strategic pivot, particularly evident in fiscal year 2024 with the divestiture of the bus manufacturing businesses (Collins and ENC) and the ongoing pursuit of the Lance Camper sale in fiscal 2025, aims to streamline operations and concentrate resources on segments with stronger competitive positioning and margin potential. This strategic realignment is foundational to REVG's current investment narrative, emphasizing a move towards a more focused, higher-performing enterprise.

Within this landscape, REVG faces competition across its segments. In Specialty Vehicles, rivals like Oshkosh Corporation (OSK) compete in fire and emergency, while other players exist in terminal trucks and sweepers. In Recreational Vehicles, major competitors include Thor Industries (THO) and Winnebago Industries (WGO). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, REVG's strategic positioning leverages its diverse brand portfolio and established dealer networks. Competitors like OSK may hold advantages in scale and certain technological areas (e.g., electric platforms), while THO and WGO are significant players in the RV space with strong brand recognition. REVG differentiates itself through customization flexibility in Specialty Vehicles and a focus on specific niches within the motorized RV market, aiming for operational efficiency and cost-effectiveness to maintain competitiveness.

Operational Excellence and Technological Edge

A critical element of REVG's strategy and a key driver of its recent performance is the intense focus on operational excellence. Through initiatives like the RevDrive business system and the application of lean principles, the company is systematically improving manufacturing throughput, particularly within its Specialty Vehicles segment. Management has highlighted significant progress in increasing fire and emergency vehicle production rates, exceeding pre-pandemic levels and achieving a nearly 30% increase from 2022 run rates through fiscal 2023 and 2024. This focus on efficiency, process optimization, and workforce training is directly translating into higher unit volumes and reduced production cycle times, enabling quicker delivery to customers.

While specific, quantifiable technological advantages across the entire portfolio are not extensively detailed, the company emphasizes product innovation and standardization as part of its margin improvement strategy. A notable example is the S-180 program within the fire apparatus business. This modular, pre-engineered fire truck is designed to offer the feel and functionality of a custom unit but with a significantly reduced delivery time – under one year, compared to the longer lead times typical for fully customized vehicles. This initiative, recently expanded from the Spartan brand to include Ferrara and KME, represents a strategic technological and operational advancement aimed at addressing customer demand for faster delivery while leveraging standardized processes for efficiency. The company's investment of $20 million in its Brandon, South Dakota facility is specifically targeted at expanding production of both the S-180 and fully custom Spartan apparatus, alongside advancements in painting and fabrication, underscoring the importance of this operational and product strategy.

Furthermore, the Recreational Vehicles segment includes Goldshield Fiberglass, which produces fiberglass reinforced molded parts for internal use and other OEMs. While specific technological differentiation metrics for this capability are not provided, it represents an in-house component manufacturing strength that can contribute to cost control and potentially product quality or design flexibility compared to relying solely on external suppliers.

These operational and technological efforts are central to REVG's strategy to enhance margins and drive sustainable growth, aiming to offset inflationary pressures and improve profitability across its core businesses.

Financial Performance Reflecting Strategic Execution

REVG's recent financial performance provides tangible evidence of its strategic transformation and operational focus. For the three months ended April 30, 2025 (Q2 FY2025), consolidated net sales were $629.1 million, an increase of 2.0% year-over-year. Excluding the impact of the divested bus businesses, net sales increased a more significant 7.7%. This growth was primarily fueled by the Specialty Vehicles segment, which saw net sales increase by 12.2% (excluding bus), driven by higher fire apparatus shipments and price realization, despite an unfavorable mix in some areas. The Recreational Vehicles segment, however, experienced a 2.4% decline in net sales due to lower unit shipments and increased dealer assistance, reflecting the continued softness in that market.

Profitability showed marked improvement, particularly in the Specialty Vehicles segment. Consolidated Adjusted EBITDA for Q2 FY2025 was $58.9 million, up substantially from $37.5 million in the prior-year quarter. Excluding the bus businesses, Adjusted EBITDA increased by 63.6%. The Specialty Vehicles segment's Adjusted EBITDA surged by 74.3% (excluding bus), reaching $56.3 million and achieving a strong 12.4% Adjusted EBITDA margin. This represents a significant expansion from the 7.7% margin in the prior-year quarter and the 11.4% margin (ex-Collins) achieved in Q4 FY2024, demonstrating the impact of increased throughput, favorable mix, and price realization offsetting inflationary pressures. The Recreational Vehicles segment's Adjusted EBITDA declined by 9.9% to $10.9 million, maintaining a 6.2% margin amidst challenging market conditions, reflecting cost management efforts.

For the six months ended April 30, 2025, consolidated net sales were $1,154.2 million, down 4.0% year-over-year, primarily due to the bus divestitures. Excluding bus, net sales increased 5.6%. Consolidated Adjusted EBITDA for the six-month period was $95.7 million, a 40.7% increase year-over-year. Excluding the impact of the Collins divestiture, Adjusted EBITDA increased by 69.1%, driven by the strong performance in Specialty Vehicles.

Liquidity remains ample. As of April 30, 2025, net debt stood at $101.2 million, with $28.8 million in cash on hand, resulting in a favorable net debt to trailing twelve-month Adjusted EBITDA leverage ratio of 0.5 times. The company has approximately $263.2 million available under its Amended 2021 ABL revolving credit facility, which matures in 2030, providing significant financial flexibility.

Cash flow from operations was strong in Q2 FY2025 ($117 million) and positive year-to-date ($103.9 million), benefiting from earnings performance, working capital management (lower inventory, higher customer advances), though timing of receivables/payables is noted as a potential headwind in the second half.

Competitive Dynamics and Strategic Positioning

REVG operates in markets with established competitors, each with their own strengths. In the fire and emergency space, companies like OSK leverage scale and long-standing relationships, including significant government contracts. REVG competes with a broad portfolio of brands and a focus on operational efficiency to manage costs and improve delivery times against substantial backlogs, which are noted as being elevated but in line with industry peers. The S-180 program is a direct strategic response to competitive pressures and customer needs for faster access to essential equipment, potentially differentiating REVG from competitors with longer lead times on custom apparatus.

In the RV market, REVG's motorized brands (Class A, C, Super C, B) compete against major players like THO and WGO. While the overall market has faced significant headwinds, REVG's retail sales for its motorized brands have reportedly outperformed the broader industry decline, suggesting effective product positioning and dealer relationships despite lower scale compared to market leaders. The strategic exit from the non-motorized Lance Camper business is intended to sharpen REVG's focus on the motorized segments where it believes it has stronger competitive positioning and greater potential for scalable operations and margin improvement. This move acknowledges the challenges faced by the Lance business (scale, geographic distance from core RV operations) and aims to reallocate resources more effectively within the competitive RV landscape.

REVG's competitive strategy centers on leveraging its diversified brand portfolio to address various market niches, driving operational efficiencies through the RevDrive system to improve profitability, and maintaining a disciplined approach to pricing and cost management to navigate cyclical demand and inflationary pressures. The company's balance sheet strength and cash flow generation also provide flexibility for organic investments and opportunistic acquisitions in tangential specialty vehicle markets, which could further enhance its competitive standing.

Outlook and Guidance

Based on its performance through the first half of fiscal year 2025 and its strategic initiatives, REVG has updated its full-year guidance, signaling confidence in continued operational momentum despite market uncertainties and tariff impacts.

The company now expects full-year fiscal 2025 consolidated net sales in the range of $2.35 billion to $2.45 billion, an increase of $50 million from the prior outlook. This represents an 8% increase at the midpoint ($2.4 billion) compared to the fiscal 2024 pro forma net sales of $2.2 billion (excluding bus). This increase is driven by an expected low double-digit revenue growth in the Specialty Vehicles segment (vs. $1.56 billion FY2024 pro forma base), while Recreational Vehicles revenue is projected to be approximately flat year-over-year ($625 million to $650 million range).

Full-year Adjusted EBITDA guidance has been raised to a range of $200 million to $220 million, up from the previous $190 million to $220 million range. The raised midpoint of $210 million represents a significant 45% increase compared to the fiscal 2024 pro forma Adjusted EBITDA of $145.2 million. This outlook anticipates that higher throughput and operational gains in the Specialty Vehicles segment will largely offset estimated tariff impacts in the second half of the year. Management estimates a $10 million second-half impact from non-chassis related tariffs, primarily in Specialty Vehicles, which is expected to lower the incremental margin on second-half revenue gains in that segment to 20%-25% (from a previously expected 30%-40%). An estimated $5 million tariff impact on imported luxury Class B vans is also expected to negatively affect the Recreational Vehicles segment's second-half Adjusted EBITDA and margin, though this impact is limited in duration.

Net income guidance has been updated to $88 million to $107 million, and Adjusted Net Income to $100 million to $130 million. These ranges now incorporate the $30 million non-cash loss on assets held for sale related to the Lance Camper business, partially offset by a $16.6 million related income tax benefit.

Capital expenditure guidance has been increased to $45 million to $50 million (from $30 million to $35 million) to support investments aimed at increasing throughput. Full-year free cash flow is projected in the range of $100 million to $120 million, with lower than normal conversion in the second half anticipated due to higher CapEx and expected working capital timing reversals. Interest expense is projected around $24 million.

The outlook assumes continued sequential low single-digit revenue increases in the Specialty Vehicles segment in the latter half of fiscal 2025 and a relatively flat revenue trajectory for the Recreational Vehicles segment year-over-year, reflecting ongoing market caution and potential consumer uncertainty.

Risks and Challenges

Despite the positive operational momentum and updated guidance, REVG faces several pertinent risks. The cyclical nature of the Recreational Vehicles and certain Commercial (terminal trucks, sweepers) markets exposes the company to fluctuations in consumer confidence, interest rates, and economic conditions, which can impact demand and profitability. While dealer inventories in RVs are improving, sustained retail demand is necessary for a meaningful recovery in wholesale orders.

Supply chain disruptions, including those stemming from tariffs, remain a dynamic risk. While REVG has limited direct import exposure, indirect impacts through its supply base, particularly from subassemblies, can affect material costs and availability. The company has estimated specific tariff impacts for the second half of fiscal 2025, but the future tariff landscape is uncertain and could present additional headwinds.

Execution risk exists in continuing to drive operational efficiencies and throughput gains across all facilities, particularly in fully realizing the benefits from investments like the Brandon, SD expansion and successfully integrating lean principles across diverse manufacturing processes. The ability to effectively manage inflationary pressures on labor and materials, beyond what is covered by existing pricing actions or pass-through mechanisms, could also impact margins.

Furthermore, the Specialty Vehicles segment's substantial backlog, while providing visibility, also carries risks related to potential customer order cancellations or postponements, although management notes that orders in this segment are generally non-cancelable for contracts over one year. Contingent liabilities related to chassis converter pool agreements, customer-provided chassis, repurchase commitments with lenders, and guarantee arrangements also represent potential, though historically not significant, exposures.

Conclusion

REV Group is undergoing a strategic transformation, shedding non-core assets to sharpen its focus on its most promising segments. The core investment thesis is increasingly centered on the Specialty Vehicles business, which is demonstrating robust operational improvements, driving significant margin expansion, and benefiting from a substantial backlog that provides multi-year revenue visibility. Initiatives focused on manufacturing throughput, lean principles, and targeted investments are yielding tangible results, positioning this segment for continued strong performance.

While the Recreational Vehicles segment faces ongoing cyclical headwinds, the company is actively managing costs, outperforming the broader industry decline in key motorized categories, and strategically realigning its portfolio with the planned exit of the non-motorized business.

Supported by a strong balance sheet and disciplined capital allocation, including share repurchases and increased dividends, REVG is leveraging its improved financial health to invest in future growth and return value to shareholders. The updated fiscal year 2025 guidance reflects confidence in the company's ability to sustain operational momentum and largely offset anticipated tariff impacts, pointing towards continued earnings growth.

Investors should monitor the pace of operational improvements, the company's ability to manage supply chain and tariff-related costs, the trajectory of demand in the cyclical RV market, and the execution of its capital allocation strategy, including potential opportunistic acquisitions in tangential specialty vehicle markets. The narrative for REVG is one of a company actively reshaping itself, with operational excellence in its core essential vehicle business serving as the primary engine for value creation amidst dynamic market conditions and a competitive landscape.