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REV Group, Inc. (NYSE:REVG)
Q4 2020 Earnings Call
Jan 07, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings, and welcome to REV Group 2020 fiscal fourth-quarter and full-year earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.

I will now turn the conference over to Drew Konop, vice president of investor relations and corporate development. Thank you. You may begin.

Drew Konop -- Vice President of Investor Relations and Corporate Development

Thank you, Cherry. Good morning, and thanks for joining us. This morning, we issued our fourth quarter fiscal 2020 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 -- 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 that we make with the SEC.

We disclaim any obligation to update these forward-looking statements which may not be updated until our next quarterly earnings 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, Rod Rushing; as well as our CFO, Mark Skonieczny. Please turn now to Slide 3 and I'll turn the call over to Rod.

Rod Rushing -- President and Chief Executive Officer

Thank you, Drew, and good morning, everyone. And thank you for joining our call this morning. I'd like to start by walking everyone back from what I hope was a healthy and happy holiday season. We were pleased to report improved earnings for the fourth quarter where we achieved the high-end of our guidance that we provided in our last quarterly call.

Sales of $616 million were 6% sequentially, or up 6% sequentially, despite some lingering in market challenges related to COVID-19 illustrating the benefit of a diverse portfolio of businesses as well as momentum -- momentum that we're building operationally. Our fiscal fourth-quarter EBITDA of $28 million grew 45% on EBITDA margin increased 150 basis points on a year-over-year basis despite -- despite a 6% decline in our revenue. Our business generated 31% more EBITDA this quarter than we did in the third quarter and we were able to convert those earnings into cash, allowing us to reduce our net debt by over $40 million within the quarter. We fully participated in increased demand for recreational vehicles and showed market share gain in three out of five product categories.

While our fire and emergency margins approved throughout the year, the commercial segment was able to address an organic drop in sales of $120 million and limit our full-year detrimental EBITDA margin. During the last nine months, we faced difficulties and perhaps some unprecedented external challenges while delivering three quarters of seq -- sequential margin improvement. We still have much work remaining and we continue to operate to the challenges with parts supply and -- and absenteeism tied to the COVID matter. However, we believe we're in a position to continue to deliver year-over-year improvements throughout the upcoming fiscal year through our operational disciplines and capabilities that we're building.

One important cornerstone that we are committed to establish at REV is to have an aligned and unified leadership team that operates under the principles of timely data-driven, fact-based decision making with a high sense of ownership and accountability. We have spent quite a bit of time in the last few months focused on leadership alignment and organizational structure. We have completed our review of the businesses and we have implemented a redesign of our operating model. This was a thoughtful examination of how the business operates, where decisions are made, and how we're structured to predictably deliver results creating value for our customers and shareholders.

The result aligns leadership and management on how we're going to run this business and where accountability sits within the organization while simplifying our business and optimizing our cost structure. There are many changes that were made to this process and I will provide a bit of insight on a few examples. We made a decision to move our center led parts business back to the business units. There was an initial hypothesis that growth would be achieved by implementing a consolidated centralized parts business stemming from some in-market synergies, that growth did not materialize.

Our businesses inherently know our customers and products and have the institutional knowledge to answer questions and deliver results to our customers more efficiently. Further, the realignment will create a $5 million annual co -- structural cost savings. The combined outcome of reducing complexity for our customers, the unrealized growth, and what ended up being creating a duplicate cost structure drove the decision to make this change. This decision was a result of a careful examination of how to efficiently serve our customers and simplify our operations.

Commercially, there are a few aspects of our operating model where we move more firmly to a center-led operation and becoming an operating company. These include development -- development of center led activities related to operational excellence and commercial excellence, or scaling of capabilities and processes real value creation for our shareholders. Many of these capabilities have been discussed by management previously but have lacked the commitment and rigor to yield sustainable improvements that create value. We are focused on changing that and made investments in new personnel and technologies to -- to our operating model to build the discipline necessary to -- to drive sustainable impro -- improvement in our performance.As part of our operational excellence, we are building capabilities to improve database decision making, simplify operations, and improve efficiencies on our balance sheet.

This includes discipline review and controls of corporate costs, manufacturing overhead, labor, and direct materials. It requires increased capabilities focused on engineering, manufacturing operations, supply chain, and purchasing. To accelerate the change process and create best-in-class operations, we have made several management changes. There are a couple that I'd like to highlight today.

First, we've expanded the role of our Commercial President Brian Perry to include the role of senior vice president of operations. In this role, Brian leads our manufacturing execution, operational excellence, and supply chain. Brian is a master black belt and Six Sigma, a Lean Sensei, and has an extensive background in manufacturing operations and purchasing, making him the ideal person to build out our center led operational efforts. He is well-positioned to take on this dual role while continuing to lead our commercial segment.

In addition, we have hired Rob Vislosky of -- as vice president and chief supply officer. Rob joins REV Group having recently led Honeywell Intelligrated Global Supply Chain and was Honeywell's corporate chief procurement officer. As CPO at Honeywell, he managed an $18 billion annual spin portfolio as well as leading 3,000 procurement -- global procurement specialists. Rob has a very broad industrial background from aerospace, automotive, paint and coatings, and includes logistics.

He has had executive leadership roles with XPO Logistics, Valspar, Reynolds Group, and Alcoa. He brings to REV Group both the vision and the execution capabilities to build the best class global sourcing organization we're looking for and purchasing supply chain organization, combined with a sense of urgency to do this at a pace. Rob has only been in the position at REV for a few weeks, but he's taken an exhaustive look at our infrastructure and he has quickly identified a list of opportunities. I'm very pleased to have Rob join our team.

I look forward to the impact that he will have on our business performance. In my nine months since joining REV, there have been challenges, some that we're expecting and some that were unexpected, we've implemented much change during that time, we began to see sequential improvements in our results. We have much work remaining in the months ahead, but I'm encouraged about the progress to date. I look forward to sharing more about the plans and the path forward with you during our Analyst Investor Day that we're planning for April.

With that, I'm now going to turn it over to Mark for details on our fourth quarter segment performance. Mark? 

Mark Skonieczny -- Chief Financial Officer

Thanks, Rod, and -- and good morning, everyone. Please turn to Page 4 of the slide deck as I review our segment level performance. Fire and emergency segment fourth-quarter sales were $330 million, a 23% increase compared to prior year. This includes approximately $75 million of sales attributable to our acquisition of Spartan ER that occurred earlier in the year.

Excluding Spartan, organic segment sales decreased 6% from the fourth quarter of last year while organic fire sales are relatively flat, we ship fewer ambulance units due to lingering co -- impacts of COVID. Although down from prior year, North American ambulance deliveries increased 21% sequentially and order trends continue to remain strong as municipalities and federal stimulus dollars prioritize health and safety needs. CARES Act stimulus dollars remain available for ambulance units delivered through the 2021 calendar year end, continuing an important driver of demand for our F&E segment. Within the fire division, throughput increased sequentially once again at our E1 plant in Ocala, Florida.

Unit production was up 44% year over year, demonstrating the benefits of lean programs and operating disciplines that were deployed over the second half of the year. Bringing in lean expertise allowed a dual track of affecting immediate change while allowing time to develop leadership, train internal resources, and build a pipeline of opex projects that will sustain continuous improvement. We plan to follow this model of deploying lean assistance where we feel there'll be an immediate impact while training our internal teams at all businesses through a Lean Academy that is designed to deliver annual throughput and costs out targets. F&E's segment adjusted EBITDA was $14.8 million in the fourth quarter of 2020, compared to $7.4 million in the fourth quarter of 2019.

The increase was primarily due to the improvements in E1 just mentioned and the acquisition of Spartan ER. Ambulance EBITDA was relatively flat with the prior year despite the decrease in sales due to product -- productivity improvements that increased margins, most notably at our largest manufacturing location in Orlando. Spartan contributed $4 million adjusted EBITDA to the F&E segment within the quarter, which completes three quarters of integration that exceeded expectations. The addition of this world-class chassis manufacturing business provides the center of excellence that will be leveraged across our fire businesses and brands, creating further opportunities for manufacturing efficiencies within the segment.

Spartan is now integrated into the F&E segment operationally, and we do not plan to call out its individual contribution in the future. Total F&E backlog was $966 million, up 16% year over year. This includes backlog acquired from Spartan and strong ambulance order intake throughout the fiscal year, including the fourth quarter. A decline in legacy fire backlog is largely the result of increased throughput at the Ocala plant, and a decrease in fire industry unit orders that occurred from the onset of COVID through approximately September of 2020.

Industry orders during that period declined over 25%. Since that time and during the final two months of our fiscal 2020, our order rates improved to levels on par with the fiscal year 2019. Fire backlog remains strong and now reflects competitive industry lead times and ambulance backlog is at a record high, which provides a solid base for sales growth and conversion to earnings within the F&E segment. We currently expect year-over-year F&E revenue improvement versus this year's softness related to COVID absenteeism and inspection delays which occurred primarily in the second and third fiscal quarters.

At this time, [Inaudible] another recurrence of the virus or additional government restrictions, we feel confident that we'll convert to earnings more efficiently and with improved incremental margins. Turning to Slide 5. Commercial segment's fourth-quarter sales were $91 million, a decrease of $56 million compared to the prior period, which included approximately $57 million from the shuttle businesses divested in early 2020. The organic decline of sales was related to lower sales at all businesses within the segment.

Year-over-year school bus sales declined 14% in the fourth quarter, which is a significant improvement to the third quarter decline of 31% and puts our fiscal second half 2020 sales ahead of reported declines in industry registrations for the same period.Municipal transit sales decreased 40% versus the prior year, primarily due to delivery schedule adjustment to a large order to accommodate the needs of our customer that we disclosed in our fiscal third quarter. The change extended the delivery timeline through fiscal 2021 and there have been no further changes to that contract. Specialty markets remain depressed with sales down 40% versus last year. While this is an improvement from third quarter's decline of 50%, the sales were primarily existing stock units built to order cancellations or delivery or delays that needed significant rework to meet customer specifications.

Turning to segment adjusted EBITDA for the commercial segment. Commercial segment adjusted EBITDA of $6.4 million was down 61% versus the prior-year period, which included $1 million EBITDA related to divested shuttle bus businesses. The decline in EBITDA was primarily a result of the sales decline in all businesses as well as the inefficiencies related to the rework of stock units within the specialty division. Although the stock unit rework had a negative contribution to performance in the quarter, given the severe end market declines in this business, we took the opportunity to right-size, would it become an inflated stock unit inventory.

Within the bus division despite revenue declines in both school and municipal markets, these businesses were able to continue to flex production with demand and contributed high single-digit EBITDA margins. Commercial segment backlog at the end of the fourth quarter was $274 million, down 14% versus the prior-year quarter, which contained $86 million to the shuttle bus backlog. Excluding shuttle bus, an 18% organic backlog increase is the result of an increase in specialty division orders within the fourth quarter and timing of a large municipal transit order that entered backlog in the first quarter this year, partially offset by decreased school bus -- school bus orders. The increased specialty orders were for both terminal trucks and street sweepers and this quarter marks the best order intake since fiscal first quarter 2019.

We have been aggressively pursuing new contracts and renewals in these markets, winning a large rental company contract for street sweepers and advancing in the bid process for terminal trucks at several national accounts. Last month, we are excited to announce a partnership with Hyster-Yale Group to develop electric and hydrogen-powered terminal trucks to reduce emissions and increase -- increase efficiency and productivity. We are targeting the end of our fiscal year to have the initial prototypes available for market testing. With momemen -- momentum in our specialty markets and a longer cycle municipal transit backlog, we feel that commercial segment is in a position to grow revenue despite uncertainty surrounding the site -- the timing of a full-time return to the classroom and impacts on school bus demand.

As COVID-19 vaccines become more widespread, there is reason to be optimistic that decision to reopen schools and districts will benefit our peak spring selling season for school bus. Given the cost out activities that we took this year across all of our commercial segment businesses, we expect increased volume and specialty and potentially school bus to convert at solid incremental margins. We anticipate the overall variability of 2020's commercial segment bottom-line margin performance will dissipate in 2021. [Inaudible] any new government directives that may impact end markets, employee attendance, or delivery acceptance, the near-term potential for this segment remains in the high single-digit EBITDA margin profile.Turning to Page -- Slide 6.

Recreation segment sales of $194 million were up 12% versus last year reflecting strong wholesale shipments and retail demand for Class B, Class C, and towable units. Class A shipments were down mid-single digits versus last year as production was limited by supply chain constraints primarily in gas units. We feel the backlog and productive -- production capacity are in place to support higher shipments once these bottlenecks clear. Despite shipping fewer Class A units our award-winning product introductions continue to take market share, resulting in higher retail demand, increased pricing, and lower discounting and allowances.

Recreation segment EBITDA, our adjusted EBITDA was $20.5 million for the quarter, an increase of $12 million or 175% versus the prior year. Adjusted EBITDA margin of 10.6% reflects the high -- reflects the higher sales mix of non-Class A products within the quarter as well as the impact of operating leverage and productivity improvements achieved across all categories with sequential and year-over-year margin gains. Despite lower Class A unit sales, profitability increased over 650 basis points versus fourth quarter 2019, and for business that had recently struggled to breakeven, it was encouraging to see profitability reach levels that are not attained over the past two years. We expect to continue this momentum by driving efficient manufacturing practices and commercial activities focused on dealer wins and market share gains that would deliver sustainable performance not only during this upturn in demand but across all parts of demand and stocking cycles.

Segment backlog increased 220% year over year to $540 million which reflects strong order intake across all RV categories over the past six months. The past two quarters were historic highs for orders by a substantial margin and our current backlog is nearly double that of any point in REV's recreation segment history. We feel this supports the current industry thinking that wholesale shipments will be up 20% or more in calendar 2021 and that our product portfolio, niche market placements, and iconic brands la -- lands us in a strong position to participate in that growth. As we move forward, we expect the sales mix of products to normalize if Class A production and delivery schedules improve and therefore expect segment margins in the mid-single digits versus a 10% achieved in Q4.

On Slide 7. Consolidated full-year net sales declined 5% year over year to $2.3 billion in a challenging year that includes suspension of production activities at our recreation segment at the onset of COVID and unplanned disruptions related to the pandemic at several other businesses. Adjusted EBITDA declined 34%, compared to fiscal 2019 to $67.5 million. Nearly $50 million or three-quarters of that total occurred in the second half of the year as revenue, throughput, and margins improved sequentially through the period.

Rod mentioned a number of restructuring activities related to right-sizing the organization. This included decentralizing the parts business from the corporate center back into the individual businesses and sunsetting less profitable brands and dealer relationships within the portfolio. The total structural cost savings executed through our fiscal year end are expected to deliver a total of $10 million annually. Turning to Slide 8.

Full-year net cash provided by operating activities was $56 million, compared to $53 million of net cash provided in the prior-year period. Cash generated was primarily due to improvements in accounts receivable and inventory management as well as an increase in customer deposits received. We will continue to work all aspects of networking capital, including reinforcing the disciplines needed to reach optimal inventory levels, balancing accounts receivable and payable terms, and aligning more of our businesses with a model that collects a greater amount of customer deposits. Networking capital at October 31, 2020 was $355 million, compared to $373 million at the end of fiscal 2019.

Net debt as of October 31 was $331 million, including $11 million cash on hand, versus $377 million at the end of fiscal 2019. At fiscal year end, the company maintained ample liquidity with $283 million available under our ABL revolving credit facility. You may recall that our term loan amendment effective in April of last year reverts to a net leverage ratio of 5.25 times with certain add-backs related to the Spartan acquisition in the fiscal first quarter of 2021.We are confident that we'll attain this target. You may also recall that our term loan expires in April 2022.

We will be working with our banking partners throughout the upcoming month to optimize our capital structure. We do not plan to issue guidance today due to the recent recurrence of COVID-19 cases globally within our business across the country. The safety of our employees remains a top priority. Contact tracing, testing, and measures to prevent the spread of the virus come with uncertain staffing levels that impact our businesses and supply chain partners.

The CDC has issued and continues to update new directives that we follow. Under these conditions, our customers' ability to travel inspect vehicles for acceptance creates uncertainty of delivery and revenue recognition timing. Until we can reasonably predict the potential impacts of these changes, we feel it would not be prudent to give a range of estimates. However, with the emergence of vaccines, we hope to have better clarity when we host our Virtual Investor and Analyst Day in April that Rod referenced.

Please save the date on April 15 when we plan to provide a deeper look at our business and operating model and provide immediate term targets. If we feel that the operating landscape has become more predictable, we expect to also provide full-year guidance. We will extend a formal invitation to this event soon. With that, I'll turn it back over to Rod.

Rod Rushing -- President and Chief Executive Officer

So I guess so -- just a few closing comments. So, you know, the -- the fiscal year 2020 has been challenging for the REV Group and our employees in many regards. We have gone through a number of internal changes as we move toward the future. We sold a business purchase and integrated a business during the time in which the external environment, as you all know, has been an often unpredictable.

I'm -- I'm pleased with the progress we have achieved in a short amount of time, given the amount of change we have experienced. Our businesses continue to have relatively healthy backlogs. And we believe this support revenue growth in the upcoming year. Most importantly, I'm very pleased with what our employees have done.

The other day, they -- they've -- they've put themselves in a situation where they've delivered on -- definitely, they can deliver on our commitments and deliver to our customers under some very adverse circumstances as we look to support the first responders in -- in our country. So I'm very pleased. I want to thank them publicly for what they've done. And with that, I think we'll hold it over and have -- have a Q&A with an open mic.

So questions and answers.

Questions & Answers:


Operator

Thank you. [Operator Instructions] Our first question is from Jerry Revich with Goldman Sachs. Please proceed. 

Jerry Revich -- Goldman Sachs -- Analyst

Yes, hi. Good morning, everyone, and congratulations in a really strong performance here.

Mark Skonieczny -- Chief Financial Officer

Hey, Jerry, thanks. Thank you.

Jerry Revich -- Goldman Sachs -- Analyst

What really stood out was the margin performance in the RV business and you alluded to mix helping. I'm wondering if we just stepped through, looking at the year-over-year margin expansion, much of that was improved productivity, how much of that was pricing mix, and should we think about the mix tailwind as being sustainable from here?

Mark Skonieczny -- Chief Financial Officer

Yeah, Jerry, as I said in a -- in the -- my -- my prepared remarks, you know, the mix really helps us and I think we've always said that, you know, outside of Class A, those are double-digit performing businesses. So we look at the mix there, our mix was down on Class A. And we really had two things helping us from a tailwind perspective, the fact that we had a larger mix and those more profitable businesses being the Class B, C's and towables. And Class A actually had a high concentration of diesel product within the quarter which is more profitable than the gas product.

So even though we say COVID, a lot of the furniture issues we've had that we talked about previously run our gas unit lines.And so even within Class A, we had a margin pickup from the concentration of diesel within the quarter which we would expect to more flatten out to a reasonable normalized rate going forward. And of course, as Class A continues to develop, it'll get more to the 40, 60 sort of split that we traditionally have seen within that group. So it really is just a matter of the amount that we sold within those other product categories, plus the mix benefit. And of course, as you saw within RV itself, the productivity improvements that they had drove, you know, a significant part of that 650-basis-point improvement.

Their sales were actually down. Go ahead.

Jerry Revich -- Goldman Sachs -- Analyst

Sorry, please go ahead.

Mark Skonieczny -- Chief Financial Officer

Yeah, I'm saying the sales were actually down year on year, right? So they actually were able to deliver a profit this quarter versus last. So that was majority of that benefit was from productivity.

Jerry Revich -- Goldman Sachs -- Analyst

OK. And in fire and emergency, nice to see Ocala turn the corner. Can you talk about how the production rates have continued into December? Have you continued to ramp higher, or was a 40% increase essentially get you through normalized run rate? And when do we see from an accounting standpoint, the lower per-unit costs flowing through to the full extent?

Rod Rushing -- President and Chief Executive Officer

Well, I -- I do think -- this is Rod. We have made considerable progress in -- in that location. But there's still opportunity for us to even do much better there. So we -- as Mark mentioned in his earlier discussion that we've gotten back to more of standard industry lead times, we continue to work on throughput on both aerials and poppers in that plant.

And we believe there are opportunities for continued margin expansion through productivity. So while we're pleased with the path we're on, and -- and we're -- and seeing this thing, move and be able to get look at our backlog, get to what we think is a more of a standard lead time, we -- we still -- still believe there's opportunity to improve our efficiencies in that plant and get a mar -- and get margin expansion to that business. So that's just work in front of us, so.

Jerry Revich -- Goldman Sachs -- Analyst

Thank you.

Mark Skonieczny -- Chief Financial Officer

Yep, thanks, Jerry.

Operator

Our next question is from Jamie Cook with Credit Suisse. Please proceed.

Jamie Cook -- Credit Suisse -- Analyst

Hi, good morning. I guess a couple of questions. One, I think you noted on the commercial side, you expected to see growth year over year. Just a clarification, I'm assuming that's, you know, normalized for the divestiture so look at sort of the $90 million quarterly run rate when you're talking about growth.

And I guess just my second question, can you just give more color -- obviously, the outlook on the -- on bus side or the school bus side is -- is -- is somewhat, you know, uncertain. As you talk to customers, can you just talk about how they're thinking about buying trends in the latter part of the year? What would be the major drivers? What would they need to see to come back in the market and just sort of, you know, the overall age -- age of the fleet? Thanks.

Rod Rushing -- President and Chief Executive Officer

Well, I think, you know -- this is Rod. I -- you know, the feedback we have from end markets or from dealer partners is that the whole thing uncertainty around school openings or schools that are open staying opening, that -- that's the driving factor in it. And right now, there's just tremendous uncertainty around that is that the back half of this year is going to shape out differently. Obviously, with the emergence of the -- of the multiple vaccines and I think what's our real drive for people to get back in school from the public.I think that's -- that's pretty clear that people want to go back to school.

That -- that makes promise, we've got a couple of things there I think could be tailwinds to help us get where we need to be, we're going to know and I think by the time we get together in April, we're going to know how that shapes out. But right now there's just too much uncertainty for us to look forward and project what that school bus market is going to look like, not knowing what the impacts of COVID is going to be until -- until we see the -- the success rate on this virus and what that looks like. And -- and then -- and further move -- moving into the -- in -- into the spring. When are -- you know, we typically see April, May being -- when we start getting significant orders and deliveries, so that'll be a timeframe.

We're going to know, but right now, it's -- it is not clear. It's just a tremendous uncertainty, everybody's kind of awaiting that -- that -- that time period.

Jamie Cook -- Credit Suisse -- Analyst

Sorry, and then just the commentary on revenues for commercial, assuming it excludes the divestiture. So look at the $90 million quarterly run rate. 

Rod Rushing -- President and Chief Executive Officer

Correct.

Jamie Cook -- Credit Suisse -- Analyst

And then my last question, how to think about the corporate expense line, you know, as -- as we look to 2021. Any color there? Thanks.

Rod Rushing -- President and Chief Executive Officer

Yeah. So you're right on the commercial, exactly, right, excluding the -- the $90 million and then on the -- on the corporate, of course, parts was part of the centralized so that $5 million drops right to the corporate line so you could see that $5 million drop. That's where that was traditionally showing the centralized parts business.

Jamie Cook -- Credit Suisse -- Analyst

OK, great. Thank you.

Rod Rushing -- President and Chief Executive Officer

Yep, thank you.

Operator

Our next question is from Courtney Yakavonis with Morgan Stanley. Please proceed.

Courtney Yakavonis -- Morgan Stanley -- Analyst

Hi, thanks. Good morning, guys.

Rod Rushing -- President and Chief Executive Officer

Good morning, Courtney.

Courtney Yakavonis -- Morgan Stanley -- Analyst

Just [Inaudible] back on the comments, you know, appreciate that there will be a mix shift in recreation extra. I think you said you expect in line with the industry wholesale shipments up about 20%. But I think you had said that you were expecting mid-single-digit margins. And I think we've historically been seeing more high single-digit out of that segment.

So just wanted to make sure I fully understood what you were thinking the mix shift impact would have on -- on 2021 given that Class A has been weak for some time now?

Rod Rushing -- President and Chief Executive Officer

Yeah, we've -- we've traditionally seen mid single-digit. So, you know, what we determine as mid, right? 5% to 7%. So that's probably in line with what we've historically done. But the mix shift really is what I refer to what Jerry's question is.

Again, at 40% of our sales being in the RV are -- are Class A business. You know those that as you know are depressed margin. So those bring down the ones that are double-digit from a -- a run rate perspective. So it's really the fact that RV are -- what we call RV are Class A was actually down from a mix.

So as they come more to the 40% to 50% range, they're 40% in the quarter versus 50% in the prior year. So you had a 10% drop there from a mix perspective. And so it's really that -- that simple, as far as looking at the other three businesses that we have in that portfolio at double-digit, and bringing in a lower single-digit mix from the Class A will actually depress those 10% down to the more the 5% to 7% range.

Courtney Yakavonis -- Morgan Stanley -- Analyst

OK, that's helpful. And then, any more specificity you could give us just on commercial and F&E margins, as we think about impacting next year. Obviously, appreciating that it's going to be dependent on your delivery schedule. But any high-level thoughts on the margin side?

Rod Rushing -- President and Chief Executive Officer

Yeah, I think we said the highest single-digit on the -- from the whole commercial side. But obviously, on the capacity, if you're talking about capacity, that's -- you know that's one, we're still with the backlog here. So as I said, in my prepared remarks, we took the opportunity to a lot of the units that we had developed coming into the what our normal selling seasons didn't develop, but exiting the quarter, we were very happy with some of the progress we made and our backlog is now performing. So we should see the variability get out of there.

But when you look at the total commercial segment, we would expect the high single sort of what we're expecting coming in a quarter if we wouldn't have had the issues that we experienced on the commercial side and liquidation that we did on some of those stock units. So we would expect it to get more likely guided to last time more than mid or the high single-digits for the commercial segment.

Courtney Yakavonis -- Morgan Stanley -- Analyst

OK, got you. And then I guess just lastly, you know, you mentioned, you know, concerns about delivery schedules for next year. But if you had to just highlight, you know, what are the three categories that has the most variability or your most concerned about versus the ones that are or that you feel most confident in the delivery schedules for next year, just -- just so we can get a sense of -- of where the real risk is?

Rod Rushing -- President and Chief Executive Officer

By categories, you mean, the business units or the product categories?

Courtney Yakavonis -- Morgan Stanley -- Analyst

Yeah, I guess I just meant, you know, within the business unit. You know obviously, your recreation club is -- is, you know, pretty strong. So do you feel like that's, you know, where you have the most certainty, you know, versus some of the product lines in -- in F&E and commercial.

Rod Rushing -- President and Chief Executive Officer

I think that -- you know the -- and I will comment and Mark can clean up what I say. I think that -- when you think about end markets that are affected by the issues, I think primarily obviously end-market demand in the -- in the school bus businesses is the issue. All the businesses are subject to some level of supplier issues that we're dealing with, I think RV is probably the one that we've seen the most stock out which is pretty consistent across the industry. The other element that we deal with a little bit, which is the timing issue, not an impact, probably within the fiscal year is just the inspections that have to take place in ambulance and fire around getting a bus off the lot or -- or I'm sorry, a truck or ambulance off the lot related to completing final inspections by getting people to the site.

That's a real issue that we -- we -- we've been dealing with in terms of, you know, revenue recognition because that has to happen in order for us to -- to convert the bus. So I think, you know, in -- in -- in a school bus, it certainly is, it's end-market demand or some -- some supplier issues that are spread throughout that we've been able to overcome for the most part, but they are -- they do pop up and we have to work through that. And then the last thing would be the businesses that are subject to inspections which is, you know, your -- your emergency segment is where we see that. And Mark, I don't know if you want to add anything?

Mark Skonieczny -- Chief Financial Officer

I think that's right. I think as we said previously, one of the things that we thought would happen here with COVID as people converted like people working from home, we expected that more people would adopt virtual inspections for our ambulance and fire trucks. And as exiting COVID, our customers have come back to wanting to see their trucks in person. And with the resur -- resurgence here, we're hoping that they'll go back to virtual but we have shifted back to wanting to do in-person inspection.

So we haven't seen them going back to virtual. So obviously, there is some flux there if people would go back to virtual inspections depending on what happens with the COVID environment. But we are back to our traditional, as Rod referred to. Actually seeing the units before they leave the yard so that we can revenue them and that's really the delays that I was speaking to.

That's really our customers coming in and inspecting the units and approving them for shipment.

Courtney Yakavonis -- Morgan Stanley -- Analyst

OK, thanks.

Operator

[Operator Instructions] Our next question is from Raj Patel with Jefferies. Please proceed.

Raj Patel -- Jefferies -- Analyst

Hey, thanks for taking the question. Quick one on F&E margins. What's the anticipated F&E margin expansion once all the production and efficiencies are sorted out? What do you think the new margin profile looks like in a new normal?

Mark Skonieczny -- Chief Financial Officer

From a fire perspective, obviously, as Rod has reiterated multiple times, we're still in a multiple ending journey here. So as he referred to on the E1, we still have a lot of work to do, we're seeing progression. But of course, we have other facilities within the portfolio two that we're going to address as I said in my prepared remarks. So we're still expecting to be in the double-digits at the end of this journey.

But we're still working through that, right? So of course, we're not given guidance here. But again, it's still in a multiple-year perspective to get to that time. So we're just happy to see the progression here that we've seen throughout the quarter. And obviously, our -- our forward-looking will provide more guidance in -- in April. 

Rod Rushing -- President and Chief Executive Officer

Yeah. I think, there's -- there's -- you know when you think about operational improvements, and -- and -- and how you walk down that what Mark referred to as a multi-year integer that when you come into the ROIs, there's some quick things you can do to get popped and to get improvement. And then it's about building capabilities. And I mentioned from an operational excellence standpoint, you know, standing up the lean capabilities and -- and center-led type activities that get implemented in the plants, around CI around purchasing, building engineering capabilities, to getting design costs through VAVE.

Those are things that -- that you have this capability of building, but the good thing is that it's a continual improvement -- a continually improved process where you're going to be getting at that every day by building pipelines to go execute again. So we're in the process right now, coming out of our operating model discussion of standing up those capabilities and building out those teams and doing the certifications that Mark talked about, through leans that are going to yield benefit to us for a very, very long time. Things that did not exist now. We're standing up those capabilities and bringing on Rob to lead our purchasing organization and get focused on that significant spin, I think it's going to yield great benefit to us too.

So those all contribute to a margin expansion story, not only in emergency but across the business. And so that's -- but it does take work to stand it up. But it starts with organizing and aligning and then investing in those capability building and then driving through process rigor each -- each day, each week, each month.

Raj Patel -- Jefferies -- Analyst

That's helpful. Thank you.

Operator

Our next question is from Mig Dobre with Baird. Please proceed.

Mig Dobre -- Robert W. Baird -- Analyst

Thanks, good morning guys.

Rod Rushing -- President and Chief Executive Officer

Hey, good morning, Mig.

Mig Dobre -- Robert W. Baird -- Analyst

Quick question on -- on -- quick question on chassis. Is -- is you're -- looking at your current production planning based on your backlog, are there any portions in your business where you're getting a sense that you're having either challenges obtaining chassis or the -- the delivery timelines are extended? And -- and look, I mean, I'm -- I'm thinking specifically around ambulances and -- and some of the stuff for recreation as well like Class Bs and so on?

Rod Rushing -- President and Chief Executive Officer

Yeah, no Mig, I'm glad to say and we -- we-we're not experiencing those, In fact, you know, we've -- we've had a pretty good supply chain from that perspective. So I was happy this quarter not to be talking about chassis shortages for once even though it's only my second one. So I know you've heard that consistently. So we've been very happy with that, in fact, you know, in the RV side, especially we, you know, took advantage of what the run rates were going to be and actually ordered ahead.

So we're actuallysitting with plenty of chassis from that perspective in that business. And then on the ambulance side, we haven't had any issues from a chassis perspective, we've been getting our appropriate allocations from our OE partners.

Mig Dobre -- Robert W. Baird -- Analyst

OK, that's helpful. And then maybe my follow-up, sort of sticking with this theme, how -- how do you think about steel prices and raw material inflation in -- in 2021? What are some of the steps that you've taken to mitigate those because, obviously historically, this has been an area where we've seen some trouble in prior years? Thank you.

Rod Rushing -- President and Chief Executive Officer

So I mean, obviously, on the parts of our business, which large part of businesses build out of backlog. You know, there's always the -- the -- the issue, you're trying to offset inflation with your efficiency efforts because your purchase price is established on a backlog based business. So we're managing that obviously a big part of what -- what Rob's efforts is going to be is -- is to look at new purchasing to be able to offset -- off set that within a fiscal -- fiscal year. So we can cycle through and get the margins that we need on a price cost basis.

But -- so it's -- it's a lot around driving efficiency to make sure that -- that we're doing everything we can to optimize our cost structure to -- to have any leakage that does come through inflation into a backlog based business, we can offset through other -- other means and Mark, I don't know if you want to add anything to that or?

Mark Skonieczny -- Chief Financial Officer

Well, I -- I think that's right, that's one of the things that I'm working personally with Rob on and make sure we understand those inflationary factors as we go through 2021 as well as our agreements with our supply base. And that's one of the things that Rob can acclimate it to, and we're -- there's actually a heightened focus in those businesses where we don't have the longer backlogs, we obviously come out with some price increases as our competitors have. So we're managing that with the supply base, as well as our -- our customers.

Rod Rushing -- President and Chief Executive Officer

I do think one of the things, you know, many things we're working on is -- is trying to get in front of how we think about price -- price as a function of inflation. And to make sure when you think about a price increase or setting a price in the market, that you're thinking about the build cycle of when that -- that vehicle will get built. So you reflect some inflationary characteristics in your costing and the business imbalance. Most of our businesses have done that to some degree.

But that's something I think that we got to get great around because when you're working on a backlog based business and you're doing selling forward projection on deliveries, you got to be thinking about the inflationary times that you're in and making sure that you're -- you're costing that vehicle, such that by the time you're doing the build or you're shipping the vehicle that you've anticipated any inflationary costs and your pricing cost.

Mig Dobre -- Robert W. Baird -- Analyst

Absolutely, I understand that. I guess I'm just wondering, based on what you know today, do you believe you're gonna -- you're going to be in a position where you can be neutral from a price cost standpoint going forward? Or should we try to bake in some kind of a headwind? Thank you.

Rod Rushing -- President and Chief Executive Officer

Yeah. I think based on the data we have now relative to price cost, the efficiency efforts that we've got the business should yield as a minimum neutrality in our performance going forward in the -- in the fiscal year.

Mig Dobre -- Robert W. Baird -- Analyst

Appreciate it, good luck guys.

Rod Rushing -- President and Chief Executive Officer

Thanks, Mig.

Operator

[Operator Instructions] We will pause for a brief moment to pull for a final question. There are no more questions at this time. I would like to turn the conference back over to Rod for closing comments.

Rod Rushing -- President and Chief Executive Officer

OK, great. Well, thank you again for joining. I appreciate the questions. You know it's -- again, I want to take a moment as we close out a fiscal year and a nine-month period for myself and then think about the changes that we've made both in process and structure and people to thank our team for -- for what's been a pretty whirlwind year, considering all the external situations that all of us have dealt with, on top of that new leadership coming in and expecting to do things a different way and maybe change some thinking.

I want to compliment our leadership team and also thank our frontline employees in -- in what they've done to serve our customers and also serve this nation and getting these necessary vehicles out and out to our community. So, again I appreciate your time today and look forward to seeing you all on April. We'll have a deeper discussion around where we're taking this business going forward. Have a great -- have a great day and a great weekend.

Thank you.

Duration: 46 minutes

Call participants:

Drew Konop -- Vice President of Investor Relations and Corporate Development

Rod Rushing -- President and Chief Executive Officer

Mark Skonieczny -- Chief Financial Officer

Jerry Revich -- Goldman Sachs -- Analyst

Jamie Cook -- Credit Suisse -- Analyst

Courtney Yakavonis -- Morgan Stanley -- Analyst

Raj Patel -- Jefferies -- Analyst

Mig Dobre -- Robert W. Baird -- Analyst

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