Clarity on Rev Group’s USPS bid could be a year away

IPO related compensation costs drive Q1 loss

Tim Sullivan
Photo from the 2017 IndyCar race at Road America. Les Tension Photography

Rev Group chief executive officer Tim Sullivan says it could be a year before there is clarity on where the Milwaukee-based company and its Turkish partner stand in the bidding for the next generation delivery vehicle for the U.S. Postal Service.

Sullivan
Sullivan

“I think it’s still early in the process,” Sullivan said. “I think there still may be some jockeying between the bidders.”

He noted the companies involved are working on a number of different types of prototypes and innovations.

“We really won’t see how that whole thing plays out probably for another nine to 12 months,” Sullivan said.

Rev Group, a Milwaukee-based specialty vehicle maker, is partnering on the project with Karsan, a Turkish firm that was one of six short-listed by USPS in September to build a total of 50 prototype vehicles. The companies were given a year to build prototypes and USPS planned to test them for six months after that.

Other companies building prototypes include AM General, Mahindra, Oshkosh and VT Hackney. Spartan Motors Inc., maker of the Utilimaster brand, was also included, but has since announced it will instead partner with another of the short-listed companies.

Sullivan said Wednesday that Spartan’s decision came as a “surprise” for Rev Group.

The companies are all vying for the contract to produce 180,000 vehicles for USPS. Sullivan has said if Rev Group wins the contract the vehicles will be produced at Milwaukee’s Century City site, potentially creating hundreds of jobs in an area of the city with high levels of unemployment.

Sullivan has also suggested Rev Group might look to put a factory in Century City even without the postal contract, but during a conference call Wednesday he said the company’s facilities are currently operating at about 60 percent capacity on average.

Rev Group also reported earnings for its first quarter as a public company on Tuesday. The results showed an 18.8 percent increase in revenue to $442.9 million, helped by the acquisitions of Kovatch Mobile Equipment and Renegade RV.

However, the company also reported a net loss of $13.3 million or 26 cents per diluted share, down from a $3 million, or 6 cent per share, loss during the same period last year. The loss was partially the result of a $25.5 million pre-tax stock compensation charge that was the result of options awarded before the company’s initial public offering.

The company said adjusted EBITDA for the quarter was $21.1 million, up from $15 million last year with the increase being driven by higher vehicle sales, strong aftermarket parts sales, lower discounts for certain vehicles and ongoing cost optimization efforts.

“We are pleased to report strong results for our initial quarter as a public company,” Sullivan said. “Our first quarter 2017 results demonstrate solid execution of the ongoing plan to scale our 27 market-leading specialty vehicle brands and meet our long-term target of generating company-wide adjusted EBITDA margins of 10 percent.”

Sullivan also discussed the company’s merger and acquisition strategy during the call, saying the company looked at 10 potential deals in 2016, executing on the ones with KME and Renegade.

“At any point in time we are seriously engaged with four to five potential targets on the M&A side of our business,” Sullivan said.

He said the strategy is to add companies that will compliment Rev Group’s current product lines and the company has a list of over 100 potential assets to evaluate.

“So we’ve got a lot of work to do over the next three to five years,” he said.

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Arthur Thomas
Arthur covers manufacturing for BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.