Q4 2019 Earnings Call

Support our customers needs as vehicle preferences continue to move down the Spectrum last week at the date work truck show. We unveiled velocity M3 a purpose-built walk-in cargo van Gogh.

This new purpose-built class 3 walking and cargo van Blends the fuel efficiency driving ergonomics and safety provisions of a cargo van cab and Chassis with the expensive cargo space of a traditional higher vehicle class. Walk in Van.

The last V M3. Is it later body design a 70% payload improvement over its predecessor the reach and better fuel efficiency, but the real game-changer is that proprietary patent-pending innovations that deliver unequal stop by stop efficiency gains that our customers demand this vehicle which can be built on three van. Chassis is receiving significant interest from our major Fleet customers, and as a strong example of our commitment to bring customers talking innovations that delivery fishing games best position us to meet their needs in the first to last mile delivery segment.

Earlier this year. We also announced the opening of a new hundred five thousand square foot facility to support the production complex in Bristol, Indiana.

Due to increased capacity demand and growth in our delivery vehicles in November. We open a new vehicle modification Center at our Charlotte campus to support the growing demand for Jesse modifications requested by Isuzu dealers in support of their contract manufacturing operations.

An electric motor coach Market, we continue the game market share and a down Market haven't gained two additional points of shared during the fourth quarter ending at 28% in the over 400 horsepower request for diesel Market.

By adopting and integrating Automotive Safety Technologies into our chassis over the past four years. We've increased our market share by 10% solidifying our position in this niche market. You said that?

We are well-positioned when the demand for the high-end luxury Motorcoach market returns.

To conclude the acquisition of road truck body has proven to be a significant addition to especially vehicle to our Specialty Vehicle product portfolio. Not only did they greatly expand our Western action capabilities across California, Arizona, Texas Texas. It also brought in a talented especially vehicle team that will play a significant role in our future with that. I'll turn the call over to discuss parties financials results for the fourth quarter. Thank you Darryl. Please turn to page eighteen or Twenty nineteen results from continuing operations improved significantly over 2018 on every key financial metric or reflect. Well on our ability to integrate key Acquisitions transformed the company by completing the ER divestiture while improving productivity for the year adjusted ebit. It was up 83 birth.

Sent to 64 million from 35 million a year ago and margin improved 37% to 8.5% from 6.5 in the prior year.

Taking out the impact of uspf truck by the order that margin would have been 9.6.

Including discontinued Ops adjusted ebitda was fifty million compared to a $34 million in 2018.

Adjusted net income nearly doubled to $44 million from $23 million in the prior year while adjusted EPS grew to 66 cents per share went from 66 cents per share to a buck Twenty Four and Twenty nineteen.

Demand for our products continue to grow and our backlog a year end was $337 Million up $190 billion or 136% from the prior-year when you flew the one-time Truck Body Work.

Turn you to pay.

9 I'll provide an overview of the quarter.

Q4 Revenue increase 6 million to 180 million including the truck body order our Revenue grew 30% compared to 139 million in 2018.

Fourth-quarter income increased to $14 million from four million in 2018 reflect the increase volume and mix improved pricing and off position of Royal Truck Body.

Q4 EPS root of 40 cents per share compared to $0.12 per share in the prior-year.

On page ten, you'll note that Q4 adjusted ebitda 14 million to $23 million from 9 million a year ago in March increased 770 basis points the 13.1 from 5.4% a year ago driven again primarily buying and Nick's Royal Truck Body and partially offset by lower Luxury Motor Home volume.

Adjusted net income Rose 166% to 17 million from 6 million in Q4 of 2018 and not just a DPS grew to forty seven cents per share from 17% or 72 cents a year ago.

No review each operating segments beginning with Fleet on page eleven.

Please reported revenue of $133 million compared to 131 Million last year.

Excluding $34 million of Pastor Revenue grows grown to a 36 million or 37%

We reported adjusted ebitda of 21014000000 from 7 million a year ago largely due to mix pricing and Manufacturing productivity.

In our adjusted ebitda margin increased to 15.9% from 5% a year ago.

Fleet backlog route 201 million or 191% to 306 million compared to a hundred and five million a year ago, excluding the one-time Truck Body order.

Moving on to page twelve in the specialty segment Revenue was $47 million up from $46 million primarily due to revenue from the dead body acquisition and partially offset by nine nine million dollars are queen decline in luxury Motorcoach volume.

Was slightly higher revenue and Better Mix adjusted ebitda increased to seven million from five million a year ago in margin improved to 13.9%. 20% from 11.6 a year ago.

Although our backlog declined 19% to Thirty 1 million a year end. We are pleased is Darryl mentioned that we are gaining market share and we're outperforming the overall Market which saw a 24% decline in class 8 diesel volume in 2019.

Please turn to the balance sheet on page Thirteen. The balance sheet presented here is from continuing operations as the ER business has been classified ads for sale a year end during the quarter. We paid down another twenty million on our revolver on top of the 5 million paid at the end of tj3 immediately following the Royal acquisition our total liquidity and year-end was $79 million.

Upon receipt of the proceeds from the sale. We paid down another 30 million on the revolver and we expect to make further payments over time. We continue to monitor our m&a pipeline for additional growth opportunities.

As a result of sale. We also have a number of short and longer-term plans to right-size our cost structure.

Expect you plead our short-term initiatives in 2020, which will generate run rate Savings of approximately 2 million annually.

Longer-term we will be making several it Investments to drive down costs through our company.

And finally, I'd like to make you aware that during your ongoing assessment our our internal control environment. We identify the material weakness in Fleet wage waiting to revenue recognition controls.

I would like to make clear that this issue had no impact on our financial statements a year end, but we have moved quickly to implement a remediation plan to make sure our internal controls are improved and designed to operate effectively.

Now, I'll turn the call back over Daryl for a 2020 Outlook beginning on page fourteen. Thank you Rick. Overall. We are excited about 20 20 and our position in the market as far as near-term Outlook is strong.

Despite the unknown impact that's going virus may have on our business.

Timer supply chain is not been disrupted. We continue to Monitor and assess the potential impact daily, and we are working closely with our suppliers to ensure continuity of Supply additionally wage demands of our products. We are closely monitoring the chassis Supply as well.

Our current outlook for 2020 is as follows Revenue to be in the range of 730 million to 780 million with the midpoint of 755. Net income of 37 million to 43 million for the midpoint of forty million adjusted ebitda 66 million to 74 million is the midpoint of seventy million earnings per share a dollar for dollar twenty midpoint at a dollar twelve, assuming a 22% tax rate and thirty five point four million shares outstanding just underneath a share a dollar twenty dollars thirty-six the midpoint of a dollar Twenty Eight now, please turn to slide fifteen my closing comments.

2019 we have transformed the company by expanding our Geographic footprint enhancing our product portfolio and accelerating our previously stated mission of Revenue growth and improved even margins today. We've aligned our business to ensure. We actually Target opportunities with an ongoing macro and micro Trends to ensure maximum eyes, top-line growth and profitability and the delivery especially vehicle markets and most importantly the Spartan team has a resources to drive both organic and inquisitive as we continue to provide innovative solutions and the markets we serve which will benefit our employees customers and shareholders.

Operator, you know ready take questions.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys off to withdraw your question, please press * then two at this time. We will pause momentarily to assemble the roster.

The first question today comes from Steve dire of craig-hallum, please go ahead. Good morning guys, I guess before I get to the obligatory coronavirus questions. You guys raised your 2020 guidance pretty considerably about 10 10 plus billion at the midpoint despite the fact that I think generally speaking the macros kind of just gotten worse. Is that a function of a large order several large orders what sort of changed in the last six months, you know relative to your outlook there? Yeah, good good question of Steve. It's basically a function of the demand. We're seeing a backlog increases, you know, we're here in March and you start to get visibility out further in the year probably till September or something.

So that gave us some.

Confidence to come out with me a little better number than people had been expecting and is that a function? I mean was that driven by you name it? Was there any customer concentration I guess in there was it fairly broad-based? It's it's broad-based as I mentioned. We're seeing growth in all of our vehicle classes and went through seven months and all customers. I think it's it's the e-commerce Trend significant growth there in the the macro space and it's off now. It's the best in the ER with much more focused on the two segments. We have left and we see operational improvements as well as growth in the revenue side.

Got it. And then I guess maybe what have you seen if anything from your clients your customers in the last, you know couple of weeks there been any cancellations or conversely just given more people seem to be having more things delivered. Has anybody told you to speed it up or any change in the last week or two or or maybe what sort of contemplated in that guidance for for virus impacts if anything else? Yeah, I think we mentioned Steve I might answer the last year last question first we mentioned this is without that cuz actually right now we don't see it impacting us at all and we'll obviously update if we see something but right now our supply is good. Obviously, we we have some inventory right when this thing kicked off. We were tracking our products from from China that we we sourced over there last year. We also have back-up suppliers as I mentioned in previous calls wage.

We offshore we have backup suppliers in North America and we're in contact with them on a regular basis and we're tracking the chassis. So we're seeing it. You know, we haven't seen that yet any request to speed up but I think you know we saw the demand coming with is Rick said our backlog and we're actually in improving throughput at plants as I mentioned on the last call. We moved truck body from Bristol up into Charlotte to get a Bristol a whole nother line to fulfill the lockean van demand, and we see as we mentioned before also moving down the vehicle class scale. We now have a class three vehicle that's been tested through durability wage was that anti-gay customers have seen it and they're excited about it as a class three do today the features in the cab and the increased payload.

So we're hearing good things from customers in that space. Yeah, maybe I'll just add Daryl's point. When we monitor talk to our monitoring the chassis flow. They could be a problem in 2020. But right now that would be unrelated to covet 19.

Okay, got it. So it sounds like you're more, you know, if there's a concern that's around the supply more so than customers canceling orders or anything like that, correct? Okay, and that's just for me and I'll jump back in the queue your specialty chassis margins were really strong in the quarter 13.9% I think um, is that a good number to use going forward or was it just sort of one time to the Plus or to the minus in that in that segment or is that sort of a good way to think about that that margin profile going forward? Yeah, I don't know that I would model it the entire Way Forward. Um, we acquired ugh Royal Truck Body kind of in September and they had a a good amount of orders that needed to get shipped off a year end. I think we've mentioned before that. They're barging is accretive to the overall margin of special dog.

And you'll there is a somewhat seasonality impact and they tend to do I think a little stronger in the back half of the year off. So, I don't think I would carry that marginal the way through.

Got it. Okay, that's it for me. Congratulations on the execution guys. Thank you. Thank you. Next question comes from Justin Claire of Roth Capital Partners, please go ahead. Hi everyone morning morning. So I guess first off, you know giving your Revenue growth outlook here in in the strong growth that you are seeing in fleet vehicles. Was wondering if you could comment on your market share their how are you saying market share trending, you know, especially given that you have an expanded National footprint now dead.

Yeah, just I would love to know that answer as well problem is is it's really hard to get data from our customers, especially the big Fleet off and when they disposed of the vehicles where we're trying different ways in in we've we've hired a new business development person to help us obviously with m&a also strategy, but just Gathering some some more data. We're talking to new companies. We haven't talked to before about registrations and we're trying to get to that page cuz I've also believed right I've mentioned I'm pretty much a date a guy. So I like to make decisions based on data and not emotions or Trends and off right now. We we can't give you that answer but we do know with one of the newer companies into the field what we've delivered. We have a strong opinion on dead.

What we built versus when what might be out there, but we also know that the customers are going to have dual sources. So we're trying to figure out of their entire life. How many have we built over the years so something working on but we don't have it right now.

All right. Thank you for the detail though. I guess shifting gears. So you indicated the Royal Truck Body acquisition is performing better than expected. I was wondering can you provide a bit more detail on the business performance there? How's the integration coming along? And you know, when do you expect that business to kind of be fully? I'm not sure I'll take the first half and I let Rick follow up with the the financial section of your question. So the integration is going well, as you know, we put that under special team chassis, which is Steve Gilliam Steve's, you know, travelling out there right now. We have some travel restrictions. I think like every company but integration is going well. I mentioned they have a great team and that's what we're really excited about. Obviously when we're talking two different companies about acquiring them part of our requests or part of the form of birth.

Is that the management team has to stay in majority of it stayed here the owner wanted to to get out but the functioning team is very strong operationally financially sales-wise and you can see that through the expanded footprint that they have those are all independent locations not through a dealer Network. So we're we're excited on what we can do with royal going forward on the sales side. Yeah, and in terms of performance, I would not say that they are outperforming I would say they were performing in line with with our expectations and like garyl mentioned. There's a strong management team and we have good visibility what's coming at us? I think your longer-term the opportunity will be to take their product portfolio and take it to other parts of the country where we'll have dead.

Manufacturing operations are flexible and we think there's opportunity for their product throughout the country.

All right, great. And then one last one for me, can you share how much in capex you expect to spend for the Bristol facility that you're opening up and then for the full 20 20, you know, how much in capex you anticipate spending? Yeah. I don't know that I'll come in directly on capex at a particular facility. Darryl mentioned that we already moved in 2019 some of our truck body out of Bristol in to Charlotte, but we do expect to see a higher amount of capital spending to not only make our plans for flexible two month old product lines, but there's also going to be some it infrastructure stand and I would say a cat Capital spending. Yep.

the uh

50 + percent or more year-over-year Justin if I could add last summer we announced we added tot even as Thursday. Oh, oh and since then we've added VP of operations to support him in order to continue operational improvements that may have with the the plants and we're actually running number of guys on events that I think we talked about in the last call. One of the first ones were continuing though. So often when you're doing that kind of a not only transform the company, but transform your operations until lean facilities you owe and VP box are are starting to hit the ground get some traction. It's going to take some Capital to grab the efficiency, but the payback is usually short and that's what we're excited about.

All right. Thanks guys. Thank you.

Again, if you wish to ask a question, please press * then 1 the next question comes from Steve of the company. Hi. Good morning. Monday morning. Yeah, I guess so first going back to the the capex question. Can you just remind me what you know maintenance capex is here. Um now that month you no longer have the our business and then maybe around the fleet or you know, in terms of your business now going forward. How much would you say of your business is focused on you know, Last Mile kind of you know leans more towards e-commerce type Solutions versus, you know, maybe traditional Banking and things like that. Yeah, you're right Steve with the best ensure our maintenance capex number goes down significantly. Yep.

But the the returns we can get in Fleet our Capital spending will be more heavily weighted there. Like I said to make these multiple manufacturing locations flexible enough that they can build multiple product lines. I see if I could add for example, we bought the choir General Truck Body out of Montebello, California. They have a a number of products that we don't have one of them in particular at that time we didn't have now we do is refrigerated box trucks class, you know, six Seven's we want to move that technology right to some of our other locations right based on the data that I talked about earlier that Justin asked about so we're going to use data understand where the market is in there. Now, we have to buy something.

digital picture frame some more calming

So that stuff does get a little expensive and we have a plan to do that and you know funny funny and and going forward as a a plan that we have put in place.

Okay, and then maybe just on the you know, kind of you know, Old World New World, you know, Revenue mix now and I mean it would seem like, you know delivery and things like that and maybe uh, you know picking up here and and given the situation. Um, and I mean, I would think you know, maybe the share of Commerce jumps, you know, certainly over the near-term. Um, but you know, I mean how much would you say of your business is currently, you know focused on, you know, maybe the high-wage what my I guess maybe we should be considered higher growth versus, you know, maybe, you know closer to GDP like growth, um at this point,

Yeah, I think if you're looking for a break out of our Revenue going forward, right, I would say if the reporters Fleet and off the remaining quarter would be with a specialty but I think you know as we really get Royal Truck Body wrapped up and able to move their product across the country the overtime some of that can that Gap can narrow but we haven't disclosed in the past's yeah the revenue by product line.

Okay, okay, and then maybe in terms of Acquisitions and things like that. Can you talk about maybe you know your own expected returns or you know, you're hurdle rates and things like that for you know, uh Investments going forward now that the our business is no longer we do offer. Yeah, you know, I think it's a good question, you know, we would certainly expect to invest with returns that are higher than the cost of capital and the Royal Truck Body is a perfect example, like I mentioned it's a creative to the overall scv35 segment and we we have the friendly are plenty of liquidity and we've had a emanate pipeline that remains active dog.

And we told people on the past that absent a deal we were deal of of the company of a very quickly, you know, we expect the leverage ratio the right now to be under one. So we'll continue to look for growth opportunities. We've had a talent show me image of a larger company and managed a better so we'll be selective while we'll focus on last mile delivery package if there are opportunities to complement the specialty chassis business be at our TV or contract manufacturing jobs that as well.

Okay.

And maybe just a quick follow-up on that. Just I mean, is there a way to think about um, you know acquisition size. I mean, um, would you guys be open to doing something transformational, um, you know in terms of you know, maybe, you know, if not coming on that but maybe you know where your comfort is, you know, taking the leverage ratio up to wage and then you know, if you're seeing anything, you know, interesting in the near-term given the disruption in the market. Thank you. I think a good question. Again. We are comfortable doing a bigger deals in the past. We had talked about kind of bolt-on Acquisitions, but we've transfer transformed a company already by getting rid of ER and you'll remember that we've told people who are very selective about our m&a wage.

Anthony and we don't feel we need to chase a deal. You know, we've also told people we didn't feel real comfortable above 2 time on our leverage ratio, but I think there's a lot available to us and we'll continue to look.

Okay. Thank you very much. Thank you.

There are no further questions this concludes our question-and-answer session. I would like to turn the conference back over to pick ups for any closing remarks. Thanks everyone for joining the call today. Normally would give you an update on some of the conference's. We will be attending here in the near future, but given the environment. It seems like that's not going to happen. I will reach out to you if you want to take advantage, but we can certainly set up virtual calls in the short-term as we get through this process. First quarter earnings will be around the first week of May and look forward to keeping you updated. Thank you. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.