Q3 2019 Earnings Call
Please go ahead.
Thank you Francesca good morning, everyone and welcome to the Spartan Motors 2019 third quarter earnings call.
Juris Pagrabs and joining me on the call today, our Daryl Adams, our President and Chief Executive Officer, and Rick Sohm, Our Chief Financial Officer for today's call. We've included a presentation deck that has been filed with the SEC has also available on our website as part motors that comp you may download the debt from the Investor Relations section of our website to follow.
Along with our presentation during the call.
Before we start today's call. Please turn to slide two of the presentation for our Safe Harbor statement, you should be aware that certain statements made during today's conference call. We may include management's current outlook viewpoint predictions and brick.
Pardon under the private secure journeys litigation Reform Act of 1980.
I caution.
Good day and welcome to the Spartan Motors to third quarter 2019 earnings results Conference call.
All participants will be in listen only mode to should you need assistance. Please take note of the conference specialist the pressing the stocky followed by zero.
After today's presentation that we'd be an opportunity to ask questions.
Ask a question you May press Star then one I touched on fun to be through your question. Please press Star then too.
Please note today's event is being recorded I would like to turn the conference over to Juris Pagrabs Group Treasurer and director of Investor Relations. Please go ahead.
Thank you Francesca good morning, everyone and welcome to the Spartan Motors 2019 third quarter earnings call.
Juris Pagrabs and joining me on the call today, our Daryl Adams, our President and Chief Executive Officer, and Rick Sohm, or Chief Financial Officer for today's call. We've included a presentation deck that has been filed with the FCC is also available on our website at Spartan Motors that kinda you may download the deck from the Investor Relations section of our website to follow.
Along with our presentation during the call.
Before we start today's call. Please turn to slide two of the presentation for our Safe Harbor statement, you should be aware that certain statements made during today's conference call, which may include management's current outlook viewpoint predictions and projections regarding Spartan motors and its operations maybe considered forward looking statements under the private Securities Litigation reform.
Active 1995.
I caution you that as with any prediction or projection. There are a number of factors that could cause apartments actual results to differ materially from projections.
All numerous that management believes could materially affect their results are identified in our forms 10-K, and 10-Q filed with the FCC. However, there may be other risk that we cannot anticipate.
On the call today, we will provide an overview of the third quarter along with a brief business update followed by a more detailed review of the third quarter results and an update on our outlook for the remainder of the year before proceeding to the Q and a portion of the call.
At this time I'm pleased to turn the call over to Daryl for his opening remarks, which begin on slide three.
Thank you just good morning, everyone. Thank you for joining us on a third quarter conference call.
Well, let's start by thanking the entire Spartan team for their hard work this quarter, resulting in a exceptionally strong performance.
Which includes record sales.
And 80% increase in adjusted EBITDA.
They actions we've taken over the past several years support our strategic growth plan, while building a solid foundation for improved performance in 2019 and beyond.
Our record revenues for the third quarter rose, 28% to 289 million underscoring the acceleration of both organic and acquisition growth.
Which includes significant geographic expansion as well as increased demand for delivery vehicles and all over a vehicle classes.
The strong growth at FBS continued in the third quarter sales were up 52% driven by higher sales for delivery vehicles and all of our vehicle classes. You are also posted another quarter of sales growth up 7% 64 million.
As a segment saw increased volume and improved pricing.
STV as expected saw sales declined 13% do lower sales for the luxury motor coach chassis and the completion of the reach vehicle order you may recall from last quarter's call. We had higher resales during the second quarter as those orders were pulled forward to meet customer demand.
Please turn to slide four and I will provide an update on a few business highlights and exciting new developments.
Investing in our future as we continue to invest in our future I like to highlight three key areas, where we've made progress towards our long term growth strategy in the quarter.
First one of the pillars of our strategic growth plan is to deliver on coast to coast expansion and through M&A, we delivered on our commitment if that within the last 10 months, we've expanded our footprint through three acquisitions.
Which added eight manufacturing facilities in four states.
Next in addition to acquire new facilities Weve remained focused on maximizing performance of our current operations by repurchasing and optimizing our current operations, we've been able to make progress towards achieving a leaner more efficient and flexible manufacturing processes.
During the quarter, we completed the relocation of Bristol truck body build to the Charlotte campus.
And by doing so our Bristol facility is now a focused walk in vans factory.
Truck bodies will now be built in Michigan, Pennsylvania in California. Additionally, I'm pleased to report that we are currently have a six month backlog at the Pennsylvania truck body facility, which nicely backfills, the U.S.P.S. or do we completed this quarter.
We also invested in all three of our office facilities to increase capacity and we've ramped up Kansas City and those trials in facilities to three shifts operations to meet strong demand for delivery vehicles.
Our third focus has been investing a new products and technologies to drive future growth.
Excuse me.
We have developed a new purpose built class three vehicle.
We plan to release next year.
The new delivery vehicle shelving concept that improves ergonomics and customer efficiencies.
And a new care manufacturing facility that we launched last quarter call Detroit truck manufacturing.
Which serves as a vertically integrated supplier of fabricate aluminum cabs for the our business.
The facility continues to increase as production ramp curve and provide material cost and quality benefits for ERP gain in 2020 as well as fulfill other fabrication needs across the organization.
Please turn to slide five.
And we'll discuss our most recent acquisition.
Continuing with our strategic growth plan last month, we announced the acquisition of road truck Bye.
As the largest specialty service body manufacturer in the west with six operating facilities across California, Arizona and Texas. This acquisition provides us Wes.
US coast to coast geographic coverage.
The acquisition of road truck body is complementary to the acquisition of general truck body, which we completed earlier. This year together, both will provide significant west coast and southwest operations, which will position us to better serve our existing customers in the region, Osama Tinsley, allowing us to grow our overall customer base.
We also pursuing many opportunities for our expanded west coast operations to support fleet customers by building and distributing commercial trucks more efficiently and cost effectively.
Please turn to slide six and I will continue with our growth strategy.
Our growth strategy supported by the continued demand for delivery vehicles and all vehicle classes.
In 2018 consensus spent sorry consumers spent 517 billion on line up 15%. This accelerating ecommerce growth is reflected in the Fps backlog, which is up 93% year over year, we'll believes the results in the quarter and throughout fiscal year reflect the abroad.
Industry demand for vehicles across our G VW, our product offerings and we expect this trend to continue.
With that I'll turn call over to read to discuss foreign financial results for the third quarter as well as our revised outlook for the remainder of 2019.
Thank you Darryl.
Turning to page eight.
Our strong third quarter.
Hi, laid growing demand for delivery vehicles are cross our entire product portfolio.
As we noted last quarter.
We expect to see stronger year over year revenue and profit growth in the second half of 29 team.
And our third quarter revenue grew 62.8 million are up 28%, Zhu hundreds and 89 million.
Q3, adjusted EBITDA grew 81% to 19.2 million from.
10.6 million a year ago.
And our margin grew from fixed all to six point states from 4.7, a year ago.
Adjusted net income more than doubled to 12.3 million from 6 million in Q3 of 2018.
While adjusted EPS also more than doubled to 35 cents a share.
And included in the quarter is approximately $1 million in startup and reef configuration costs incurred in our offices and truck body plants.
Our backlog at quarter end continues to grow and ended at 459 million up 41% from a year ago, excluding the postal truck body of work.
Now, we'll get each Bu beginning with fleet on page nine.
We reported record revenue of nearly a 180 million.
Compared to just over 118 million in the prior year.
For growth rate of 52%.
The revenue growth is driven by higher volume and pricing.
Adjusted EBITDA grew to 17.4 million all grew 17.4 million to 24.7 million from 7.2 million a year ago.
Largely due to volume.
Lower material costs from new load color country procurement.
And improved pricing offset by the million dollars will start up cost I mentioned earlier.
Our margin grew 13.7% from 6.1% a year ago.
When you exclude the one time truck body order our margin what are the than 15.8% compared to 17, our 7.6% a year ago.
Please backlog grew 93% to 224 million compared to 116 million a year ago. It.
Excluding the truck body order.
Moving to page 10 any our.
Q3, 29 key revenue grew 70% to fix the 4 million from 60 million in the prior year.
The growth any our revenue was driven by higher volume and pricing.
Adjusted EBITDA in Q3 declined to a loss of 1.1 million from a profit of point 6 million in the prior year.
The decline was primarily the result of unfavorable mix.
Higher material cost and was partially offset by pricing and volume.
Our backdrop blatt backlog grew 11% to 195 million.
Compared to a 176 million in the prior year.
Turning to page 11, I will cover our specialty.
We reported revenue of 45 billion.
Down from nearly 52 million in 2018.
Due primarily to a 6 million dollar decline in motor home volume and the completion of the reach built in Q2 of 29.
As a result of the decline in revenue adjusted EBITDA declined to 4 million from 6 million a year ago, driven by volume mix and the manufacturing disruption due to an OEM strike.
The resulting margin decreased.
To 9% from 11.4% a year ago.
Our backlog at the end of accorded growth 18%.
40 million from 34 million in the prior year.
Well look at our balance sheet on page 12.
Our overall leverage and liquidity position remain a key resources to support our long term strategy.
During the quarter, we paid 5 billion down on our revolver.
And our total liquidity at quarter end was 55 million.
We sense paid down another 10 million or revolver earlier in the month of October .
Our improved liquidity matches.
The debt pay down on the 10 million.
And we expect Acquity to continue to improve for the remainder of the year.
On page 13, I'll review, our outlook for the remainder of 2019.
Based on our year to date performance.
Combined with our footprint growth improving backlog growing productivity and new low cost country procurement, we're improving our current outlook for 2019 midpoint by the fault.
Revenue of 2% to a range of 990 million to a billion.
Net income up 11% to a range of 27.3 to 20.8 million.
Adjusted EBITDA of 18% to a range of 51.9 to 53.7 million.
Earnings per share up 10% to a range of 77 to 81 cents.
And adjusted earnings.
Up 23% to a range of.
In the nine to 93 cents.
Now I'd like to turn the call back over Cheryl.
Thanks, Rick Please turn to slide 14.
First strong performance through the first nine months of 2019 provides a solid platform. We can see continued growth for the remainder of 2019 and into 2020.
As far as team continues executing our overall strategic growth plan will continue to invest in new products technology and manufacturing facilities to expand our leadership position in the markets, we serve that will benefit our employees customers and shareholders.
Operator, we're now ready to take questions.
So we'll now begin the question answer session to ask a question you may plan.
Our next question.
And any color. Your question is when is that largely due to your question. Please press Star then Tim.
[laughter].
Steve Dyer with Craig Hallum. Please go ahead.
Good morning, and congratulations on those results Skus.
Thanks, Steve Thank you Steve.
Mark a question on margins so guidance for Q4 implies.
Really exceptional margins and I guess, a couple things one am I right in assuming that a lot of that is due to.
The U.S.P. as pass through business being done for the time being and if so are those the kind of margins, we should be thinking about going forward.
I think you're right on our fourth quarter. A won't include any of the past or revenue and we expect to have a good strong fourth quarter.
The margin I think I wouldn't model that as I go forward margin.
With the fourth quarter because.
In the fourth quarter of the year, we typically get something of a downturn in deliveries of E. Our products and motor home products, but.
Yes fourth quarter is gonna be real good Steve.
But but from a segment perspective, you know absent of mix.
In absence, I guess, another big pass through order at some point. These are the kind of FBS margins that you'd be comfortable with looking out into the future.
Yeah, if you look at Q3.
Hello, and welcome to the Spartan Motors for third quarter 2019 earnings results Conference call.
All participants will be in listen only mode to should you need assistance. Please take note of the conference specialist, but pressing the stocky followed by zero.
After today's presentation that we'd be an opportunity to ask questions to ask a question. You May Press Star then one I've touched them soon to be through your question. Please press Star then too.
Please note today's event is being recorded I would like to turn the conference over to Juris Pagrabs Group Treasurer and director of Investor Relations. Please go ahead.
Thank you Francesca good morning, everyone and welcome to the Spartan Motors 2019 third quarter earnings call.
Juris Pagrabs in joining me on the call today, our Daryl Adams, President and Chief Executive Officer, and Rick Sohm, Our Chief Financial Officer for today's call. We've included a presentation deck that has been filed with the FCC is also available on our website at Spartan Motors that caught you may download the deck from the Investor Relations section of our website to follow.
Along with our presentation during the call.
Before we start today's call. Please turn to slide two of the presentation for our Safe Harbor statement, you should be aware that certain statements made during today's conference call, which may include management's current outlook viewpoint predictions and projections regarding Spartan motors and its operations maybe considered forward looking statements under the private Securities litigation.
Reform Act of 1995.
I caution you that as with any prediction or projection. There are a number of factors that could cause Spartans actual results to differ materially from projections.
All Nonres that management believes could materially affect their results are identified in our forms 10-K, and 10-Q filed with the FCC. However, there may be other risk that we cannot anticipate.
On the call today, we will provide an overview of the third quarter along with a brief business update followed by a more detailed review of the third quarter results and an update on our outlook for the remainder of the year before proceeding to the Q and a portion of the call.
At this time I'm pleased to turn the call over to Daryl for his opening remarks, which begin on slide three.
Thank you Jeremy good morning, everyone. Thank you for joining us on a third quarter conference call.
Well, let's just start by thanking the entire Spartan team for their hard work this quarter, resulting in a exceptionally strong performance.
Which includes record sales.
And 80% increase in adjusted EBITDA.
They actions we've taken over the past several years support our strategic growth plan, while building a solid foundation for improved performance in 2019 and beyond.
Our record revenues for the third quarter rose, 28% to 289 million underscoring the acceleration of the both organic and acquisition growth.
Which includes significant geographic expansion as well as increased demand for delivery vehicles and all over a vehicle classes.
The strong growth after yes continued in the third quarter sales were up 52% driven by higher sales for delivery vehicles and all of our vehicle classes. You are also posted another quarter of sales growth up 7% 64 million.
As a segment saw increased volume and improved pricing.
STV as expected saw sales declined 13% due to lower sales for the luxury motor coach chassis and the completion of the reach vehicle order you may recall from last quarter's call. We had higher resales during the second quarter as those orders were pulled forward to meet customer demand.
Please turn to slide four and I'll provide an update on a few business highlights and exciting new developments.
Investing in our future as we continue to invest in our future I like to highlight three key areas, where we've made progress towards our long term growth strategy in the quarter.
First one of the pillars of our strategic growth plan is to deliver on coast to coast expansion and through M&A, we delivered on our commitment if that within the last 10 months, we've expanded our footprint through three acquisitions.
Which added eight manufacturing facilities in four states.
Next in addition to acquire new facilities Weve remained focused on maximizing performance of our current operations by re Purposing and optimizing our current operations, we've been able to make progress towards achieving a leaner more efficient and a flexible manufacturing processes.
During the quarter, we completed the relocation of Bristol truck body built to the Charlotte campus.
And by doing so our Bristol facility is now a focus walk in vans factory.
Truck bodies will now be Bill and Michigan, Pennsylvania in California. Additionally, I'm pleased to report that we are currently have a six month backlog at the Pennsylvania truck body facility, which nicely backfills, the U.S.P.S. or do we completed this quarter.
We also invested in all three of our office facilities to increase capacity and we've ramped up Kansas City and those trials in facilities do three shifts operations to meet strong demand for delivery vehicles.
Other focus has been investing in new products and technologies to drive future growth.
Excuse me.
We have developed a new purpose built class three vehicle.
That we plan to release next year.
The new delivery vehicle shelving concept that improves ergonomics and customer efficiencies.
And a new care manufacturing facility that we launched last quarter call Detroit truck manufacturing, which serves as a vertically integrated supplier of fabricated aluminum cabs for the our business.
The facility continues to increase as production ramp curve and provide material cost and quality benefits for IAR, beginning in 2020 as well as fulfill other fabrication needs across the organization.
Please turn to slide five.
And we'll discuss our most recent acquisition.
Continuing with our strategic growth plan last month, we announced the acquisition of road truck body.
As the largest specialty service body manufacturer in the west with six operated facilities across California, Arizona and Texas. This acquisition provides us west.
Coast to coast geographic coverage.
The acquisition of road truck body is complementary to the acquisition of general truck body, which we completed earlier this year together, both will provide significant west coast in southwest operations, which will position us to better serve our existing customers in the region, while simultaneously, allowing us to grow our overall customer base.
We also pursuing many opportunities for our expanded west coast operations to support fleet customers by building and distributing commercial trucks more efficiently and cost effectively.
Please turn to slide six and I will continue with our growth strategy.
Our growth strategy supported by the continued demand for delivery vehicles and all vehicle classes.
In 2018 consensus spent sorry consumers spent 517 billion on on line up 15%. This accelerating E. Commerce growth is reflected in the Fps backlog, which is up 93% year over year will leave the results in the quarter and throughout fiscal year reflect the abroad.
Industry demand for vehicles across our G. VW, our product offering and we expect this trend to continue with that I'll turn call over to read to discuss foreign financial results for the third quarter as well as our revised outlook for the remainder of 2019.
Thank you Darryl.
Turning to page eight.
Our strong third quarter.
Hi, laid growing demand for delivery vehicles are across our entire product portfolio.
As we noted last quarter.
We expect to see stronger year over year revenue and profit growth in the second half of 29 team.
And our third quarter revenue grew $62.8 million are up 28%, Zhu hundreds and 89 million.
Q3, adjusted EBITDA grew 81% to 19.2 million from.
10.6 million a year ago.
And our margin grew from fixed all to six point states from 4.7, a year ago.
Primarily to a shift in product mix to last mile delivery demand across the portfolio.
Adjusted net income more than doubled to 12.3 million from 6 million in Q3 of 2018.
While adjusted EPS also more than doubled to 35 cents a share.
And included in the quarter is approximately $1 million in startup and re configuration costs incurred in our outfit and truck body plants.
Our backlog at quarter end continues to grow and ended at 459 million up 41% from a year ago, excluding the postal part part of your work.
Now, we'll get each Bu beginning with fleet on page nine.
Leave reporting record revenue of nearly a 180 million.
Compared to just over 118 million in the prior year.
For growth rate of 52%.
The revenue growth is driven by higher volume and pricing.
Adjusted EBITDA grew to 17.4 million all grew 17.4 million to 24.7 million from 7.2 million the euro.
Largely due to volume.
Lower material costs from new low cost country procurement.
And improved pricing offset by the million dollar you'll start up cost I mentioned earlier.
Our margin grew to 13.7% from 6.1% a year ago.
When you exclude the one time truck body order our margin order than 15.8%.
Compared to 17, our 7.6% a year ago.
Please backlog grew 93% to 224 million compared to 116 million a year ago.
Included in the truck body order.
Moving to page 10 any are.
Q3, 29 key revenue grew 70%, so 64 million from 60 million in the prior year.
The growth any our revenue was driven by higher volume and pricing.
Adjusted EBITDA in Q3 declined to a loss of 1.1 million from a profit of point 6 million in the prior year.
The decline was primarily.
The result of unfavorable mix.
Higher.
Cheering on cost and it was partially offset by pricing and volume.
Our backdrop blatt backlog grew 11% to 195 million compared to 176 million in the prior year.
Turning to page 11, and will cover our specialty.
We reported revenue of 45 billion.
Down from nearly 52 million in 2018.
Due primarily to a 6 million dollar decline in motor home volumes and the completion of the reach built in Q2 of 29.
As a result of the decline in revenue.
Adjusted EBITDA declined to 4 million from 6 million a year ago, driven by volume mix and the manufacturing disruption due to an OEM strike.
The resulting margin decreased.
Just 9% from 11.4% a year ago.
Our backlog at the end of a poor did growth 18%.
The 40 million from 34 million in the prior year.
Well look at our balance sheet on page 12.
Our overall leverage and liquidity position remain a key resources to support our long term strategy.
During the quarter, we paid 5 billion down on our revolver.
And our total liquidity at quarter end was 55 million.
Weve sends paid down another 10 million on the revolver earlier in the month of October .
Our improved liquidity matches.
The debt pay down on the 10 million.
And we expect our capacity to continue to improve for the remainder of the year.
On page 13, Wholl review, our outlook for the remainder of 2019.
Based on our year to date performance.
Combined with our footprint growth improving backlog growing productivity and new low cost country procurement, we're improving our current outlook for 2019 midpoint by the fault.
Revenue of 2% to a range of 990 million to a billion.
Net income up 11% to a range of 27.3 to 20.8 million.
Adjusted EBITDA up 18% to a range of 51.9 to 53.7 million.
Earnings per share up 10% to a range of 70 781 cents.
And adjusted earnings.
23% to a range of 89 to 93 cents.
Now I'd like to turn the call back over to Darryl.
Thanks, Rick Please turn to slide 14.
First strong performance through the first nine months of 2019 provides a solid platform. We can be continued growth for the remainder of 2019 and into 2020.
As far as he continues executing our overall strategic growth plan will continue to invest in new products technology and manufacturing facilities to expand our leadership position in the markets, we serve that will benefit our employees customers and shareholders.
Operator, we're now ready to take questions.
So we'll now begin the question and answer session to ask a question you May play a star then one last question Karen.
And any kind of your question is when is that largely due to your question. Please press Star then Tim.
[laughter].
Steve Dyer with Craig Hallum. Please go ahead.
Good morning, and congratulations on those results Skus.
Thanks, Steve Thank you Steve.
Mark question, a margin so guidance for Q4 implies.
Really exceptional margins in just a couple of things one am I right in assuming that a lot of that is due to.
You Sps pass through business being done for the time being and if so are those the kind of margins, we should be thinking about going forward.
I think you're right on our fourth quarter won't include any of the past or revenue and we expect to have a good strong fourth quarter.
Margin, Oh, I think I would model that as I go forward margin.
The fourth quarter because.
In the fourth quarter of the year, we typically get something of a downturn in deliveries of E. Our products and motor home products, but.
Yes fourth quarter is gonna be real good Steve.
But but from a segment perspective, you know absent mix.
In the absence I guess another big pass through order at some point. These are the kind of FBS margins that you'd be comfortable with looking out into the future.
Yeah. If you look at Q3, we feel comfortable.
For for played on a go forward basis said that kind of level.
Oh Q4, you meet or do you mean Q3.
No Q3 will be a good proxy going forward.
For Q4 in terms of margin.
Got it okay.
And then on slide four.
You guys talked about a new purpose built trucked in parentheses as that is that for a specific customer or is that.
And if so is it something you can sort of branch out to other customers are little color around that would be great.
Yeah, Steve I'll take that one.
I think you've heard us talk about how we see the vehicle delivery class moving down into the lower classes.
And this is just our.
You have a lot of the euro bands out there that running around and people are asking for smaller vehicles.
And so we've put together a.
What we think is going to be exceptional in the market and be exciting.
So it's on a class three platform and its a bill any customers not purpose built by customers purpose built by the.
Industry, which is going to be delivery vehicles.
Okay, and then last one for me I'll jump back in the queue. The backlog that you guys have put together in an effort to I'm, assuming that is little to no you Sps and as all sort of upset and my purpose built is that right or I'm, sorry, a pass through.
Right, Steve that the we ended in Q this quarter with the U.S.P. as bill.
We have not heard any news about the add on order that we talked about previously so the backlog is 100% regional and commercial in that region of the country.
Got it that's great. Okay. Thank you.
Thank you.
The next question in San Jacinto with Roth Capital Partners. Please go ahead.
Hi, everyone.
Well I am just Warren.
So I guess first you know what the acquisitions that you've made both on the east coast in the West Coast. You know you now have a national footprint. So I was wondering if you talk about the response that you're seeing from your customers and whether you're actually getting increased order flow from national accounts that may want to.
Take delivery of trucks.
In different regions of the country.
The adjustments is there I'll take this one so I think peak if you go back to a strategy discussions in the past we talked about the cells in the national footprint.
Thank you.
Just described the reason we did that was because we heard from customers that we would only receive.
Under the order and the other two thirds would go to competitors on either coast. So.
This fulfills our commitment to be on the coast to coast and to to answer your second part of your question. We are seeing increased order flow we're seeing.
Customers come to us and ask us.
They can have certain number of trucks at each location.
Across the country, So we'll get a certain quantity in California.
Some here in Bristol or in show a lot and then the balance in Pennsylvania, So that is.
Fulfilling our commitment again on our customer asks.
US to be there and we put in place a strategy to get there and it's working.
Okay, Great and then could you comment on the ability to improve margins as a result of that because you know I assume you need you only need of so many people to managing particular customer relationship, but now you can serve that customer across the entire country.
So you could.
Soon that you could get a margin uplift can you can you comment on that.
We typically don't talk about margins by individual product line.
The year concept is correct.
In the past, we've not been able to be competitive in either one of those two locations the east coast or the West coast.
Now with the having those two covered we can compete and it's going to be depending on a market, but I think as they continue to get integrated and our goal is to have them integrated within.
12 months or less.
You will see some of the fall through the bottom line.
Okay.
And then shifting to the balance sheet.
With the purchase of real truck body, you increased level of debt.
But it sounds like you've already repaid a 15 million or so on the debt that used to fund the acquisition.
Was wondering if you could just talk about the level of debt you're comfortable but with what you're repayment plans are and then looking toward the future. If another acquisition or to if there was an attractive acquisition that were to present itself could you use that to fund that a purchase.
Yes. Good question I think what we've said all along is an absence held another deal leave cash flow or to pay down the revolver on it I would expect.
By yearend.
Another payback on that revolver of I think yeah, we've talked.
Not the not feeling real comfortable.
When you start approaching three times leverage.
But I guess to your point, if there was an attractive acquisition that up would be a positive to our footprint a positive data management front.
We would pursue that and we're confident.
We can get the financing for it.
Okay, Great. That's it for me I will pass it on.
Thanks, Justin Thanks.
The next question is from Steve O'hara with Sidoti and company. Please go ahead.
Yeah, Hi, good morning.
On Wednesday.
I'm just curious I think you noted that material costs were headwind for E. R.
And then a you know I guess a tailwind. We then fleet vehicle I'm just wondering what the.
How that works.
Is it no longer lead time is just a quick or turnover, what's the how does it may be different sourcing areas can you explain that.
Yes, Dan this is Darryl.
You nailed it.
And your your question right. So if you remember he our is about a year backlog.
And we've talked about we still have some of those headwinds through.
The second half of this year in previous calls and meetings.
Well on the so you got to your backlog, we have contracts with municipalities and going back they have certain clauses and they're going back and getting a material increases through the contract is not easy and we haven't had much success. If you go to fleet to your second part of the question that's it.
Shorter lead time, and cold period, and its PEO to appeal is not a long term volume. So we can price the material fluctuations into that if I remember last year in Q3 as we told everyone is immaterial is going up we committed to volume.
Through the end of the year the material came back down so that volume we had to swallow at a higher price.
So we did put in.
Some policies and procedures to eliminate that going forward and I think.
Remember I also said that will not happen to us again and once we work through the ERP. We're finding our plan is working on the SBS side.
Okay, and maybe I'm just a follow up on that I mean is there way to think about your margins.
You know.
You know maybe into next year.
As I assume you know kind of you work through that inventory and I think you guys when for price increase et cetera.
How do you think about your margins maybe.
Next year.
We still stick to our commitment that we've made 3% to 6%, but it's.
Due to the tariffs and other items that has been pushed out so we haven't put a year on it but we see it somewhere between where it is today and it will be.
The trajectory that is consistent overtime and it will get up to that 3% to 6%.
Okay.
And then was there any impact.
In the quarter or maybe going forward from GM strike or anything like that is that not a is that not been an issue.
Oh no. Good question, Steve Oh, we had an issue or starting kind of mid September .
Filled a quarter it wasn't a big impact this quarter that will be affected is is October on that will be a relatively small number because we can make up the production later in the quarter.
And Steve our customers are asking us to foot plans together to make up that volume that was was missing that say so we see it's as I said minimal.
Impact if any to this quarter.
Full year.
Okay, and then maybe just lastly on the.
You Sps contract, where there was there any you Sps revenue in the quarter.
And then.
Was that a.
You know was that a big impact on on.
Yes.
Margins.
In the quarter or maybe the reduction to that revenue was that a big impact on the quarter.
It probably wasn't as big as Q1 in Q2.
As I think we had.
23, nobody yet in the quarter of a pass through revenue and that's what drove the adjusted now for a from 13.7% to 15.8.
Okay, all right. Thank you very much.
Thank you.
Yes, good question and answer session I would like to turn the conference back over to Juris Pagrabs for any closing remarks.
Thank you Francesco.
Thanks, everyone for participating today, just a heads up will be over in Chicago next week participating in the Barrett Industrial conference see many there and that will be I think the next scheduled update is will be fourth quarter sometime in February .
Thank you would have a great day.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.