Q2 2021 Shyft Group Inc Earnings Call
[music].
Good morning, and welcome to you and the shift group second quarter 2021 earnings results Conference call. All participants will be in listen only mode should you need assistance. Please signal of a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be and opportunity to ask questions to ask a question. You May Press Star then 1 on your Touchtone phone to withdraw from the question queue. Please press Star then 2 please note. This event is being recorded I would now like to turn the conference over to jurors pay grabs the group Treasurer and head of Investor Relations. Please go ahead.
<unk>.
Thank you Kate and good morning, everyone and welcome to the shift group second quarter 2021 earnings call.
Joining me on the call today are Daryl Adams, our President and Chief Executive Officer, and John <unk>, Our Chief Financial Officer for.
For today's call. We've included a presentation deck debt, which will be filed with the SEC and is also available on our website at the shift group dotcom.
The download the deck from the Investor Relations section of the website to follow along with our presentation during the call.
Before we start please turn to slide 2 of the presentation for our Safe Harbor statement, you should be aware that certain statements made during today's call.
Which may include managements current outlook viewpoint predictions and projections regarding the shift group and its operations may be considered forward looking statements under the private Securities Litigation Act of 1095.
I caution you that as with any.
And our projection there are a number of factors that could cause the shift groups actual results to differ materially from projections.
All known risks that management believes could materially affect the results are identified and our forms 10-K, and 10-Q filed with the SEC.
However, there may be other risks that we cannot anticipate.
On the call today, we will provide a business update before moving on to a more detailed review of the results and our outlook for the remainder of 2021.
We will then open the line for Q&A.
I would like to also remind everyone that with the divestiture of the emergency response business last year and February.
The revenues and expenses associated with the air business as well as the assets and liabilities have been reclassified as discontinued operations for all periods presented.
With this reclassification the results discussed today will refer to continuing operations unless otherwise noted.
At this time and I'm pleased to turn the call over to Daryl for his comments beginning on slide 3.
Thank you Juris good morning, everyone. Thank you for joining us to discuss our second quarter 2021 results.
We're very excited and pleased to share with you our second quarter performance the.
It exceeded our expectations as our sales nearly doubled and adjusted EBITDA tripled over the prior year.
As you can see upside for this momentum.
Driven by strength and quality innovation and customer focus product development combined with rising demand and our markets led to a significant order intake across all segments.
With backlog of more than doubling to a record of $751 million, providing visibility through 2021 and into 2022.
The benefits of our strategy continue to be clear as we delivered our highest quarterly sales on record with revenues of $244 million, resulting in an income from continuing operations of $17 million and 44 per share.
Please turn to slide 5.
Well provide a business update.
Let me start with an update on what we are experiencing with respect to the supply chain because of.
Sure. This is top of mind for many of you.
During the back half of the second quarter, we experienced industry wide supply constraints, including chassis and other components, which caused production challenges. However.
As our results show, we effectively manage through these challenges thanks to the hard work and the termination of our entire team.
Based on feedback from our OEM and suppliers. We expect these challenges to continue at some level and we will continue to add rigor to the internal processes to ensure we are able to minimize any potential impact generally of more CRE.
Gary and John will have additional comments later in the presentation.
Turning to the business segments and fleet vehicles and services strong order flow continues as.
As we have positioned ourselves with the right products that meet the needs of our customers and the industry and Q2, we achieved a steady ramp and production of the new velocity of vehicle with our daily outfit, increasing significantly despite chassis and component constraints we.
We expect to see continued acceleration as we enter the second half.
Given the positive feedback we're receiving on the velocity, we are now working with other locations and channels.
And we are now seeing interest from the dealer market.
Other highlights and the quarter include continued strong truck body order flow.
And we continue to make headway and our efforts to provide grocery customers with both up fit and delivery refrigeration solutions and walk in vans truck bodies and cargo vans.
Moving to the specialty vehicles segment.
The strength of our innovative products and the underlying markets as a result, and a significant growth and sales and profitability, even as our teams manage through the pandemic related supply constraints.
Our motor home market share during the quarter increased to 31%, reflecting the demand of our product offerings and our brand among the motor home buyers.
We're even more optimistic about the upcoming 22 model year launch, which is happening this month.
We believe we will reflect strong consumer demand amid low dealer inventory levels.
Our service body business continues to execute on our strategy of geographically expanding our product offerings to drive additional growth and volume and new products.
Our service by the team achieved record revenue and the second quarter, which includes the impact of the <unk> acquisition.
We continue to leverage our flexible manufacturing capabilities by expanding and California, and AD and the equipment outfit and mounting and Charlotte, Michigan and West Palm Beach, Florida.
Additionally, our service body operations have been approved for ship through by General Motors, and Charlotte, Michigan, which allows us to delivery mounted services, sorry mounted service bodies to any dealer and the general Motors distribution network across the United States.
Let me provide and update.
And some additional context on shift innovations.
Which we announced and the second quarter shifts innovations as a dedicated mobility research and development team reporting directly to me.
And initially focused on the introduction of the shift of electric vehicle chassis.
We're very excited by this opportunity to leverage our near half century of expertise and building chassis.
2 of new product with great potential.
Or on track record of building alternative propulsion vehicles for more than 17 years, which will bring to bear on this new effort.
We know the demand is there and many of our biggest customers and last mile delivery of searching for innovative and efficient ways to meet the commitments to stakeholders to improve efficiency and to reduce carbon emissions within their operations.
We continue to make good progress on the existing new initiative, but let me outline some some.
Some of how we will differentiate our offering from the growing competitor base.
The first phase of the project will focus on class III electric vehicles chassis.
Our electric vehicle chassis will initially be available and 2 wheel basis.
2 wheel based options with 5000 pound payload offering a range of up to 170 miles of 75 miles.
We are very excited with the extremely talented team we are of assembly to support our electric vehicle chassis development.
We have made considerable progress on the electric vehicle chassis design and have finalized key design objectives and performance requirements on the electrical vehicle chassis.
Proof of concept chassis design has been completed and we start the assembly of the first electric vehicle chassis of this month.
We have signed LOI with a number of key suppliers and we have also secured additional component suppliers to support prototypes and production.
And we look forward to updating you on our continued progress with that I'll turn the call over to John to discuss shifts financial results for the second quarter and more detail as well as provide and update on our 2021 outlook beginning on slide 6.
Thank you Daryl and good morning, everyone. Please turn to slide 7 and I'll provide an overview of our financial results for the second quarter.
The ship group continued to perform at a high level on the second quarter, despite ongoing challenges and the broader supply chain we.
We saw robust growth across all segments of the business and while second quarter of 2020 was depressed due to the impacts of the COVID-19 the underlying strength and demand for our products was clear and our results.
Revenue for the second quarter was $244 million up 96, 8% from the year ago quarter.
Income from continuing operations was $17 million compared to a loss of $1.1 million a year ago.
Diluted earnings per share from continuing operations was <unk> 44 per share compared to a loss of <unk> <unk> per share and the second quarter of 2020.
On an adjusted basis.
EBITDA from continuing operations more than tripled rising 206% to $28.6 million from $9.4 million last year.
As a percentage of sales adjusted EBITDA increased 420 basis points to 11, 7% of sales from 7.5 percentage of sales last year.
Adjusted net income rose, 316% to $19 million or <unk> 53 per share from $4.6 million or <unk> 13 per share and the prior year.
Let me now take you through the results by operating segment, beginning with fleet vehicles and services on slide 8.
Our FBS business posted an impressive quarter effectively managing through the supply chain and labor challenges to get vehicles and the hands of our customers. While also seeing continued order strength.
The business delivered revenue of $168.3 million up 73% compared to $97.2 million a year ago. The.
The increase was broad based with strong double digit percentage growth across all product categories as well as a significant contribution from initial sales of the velocity product line.
<unk> adjusted EBITDA was up 107% to $28.3 million versus $13.7 million a year ago.
Adjusted EBITDA margin was 16, 8% of sales compared to 14% and the second quarter of 2020.
We continue to see the benefits of both our factory lean initiatives as well as our investment and automation, which has helped us expand our output and partially offset supply chain challenges.
With impressive growth and new products led by of velocity, we saw significant order growth that resulted and FBS backlog of $669 million the third consecutive quarter of record highs.
FBS backlog was up 12% sequentially and up of remarkable 130% compared to the prior year.
Please turn to slide 9 for the specialty vehicles segment overview.
Specialty vehicles momentum continued and the second quarter as the business delivered strong revenue growth across all categories with impressive growth and motor home chassis in particular.
Sales were $75.7 million and increase of $49 million or 183% versus prior year.
Our luxury motor coach chassis business grew 191% year over year and while the prior year comp includes the impact of Covid, the increase and motor coach chassis sales were up over 40% when compared to the same quarter of 2019, clearly demonstrating the strength of our products and the market.
On an organic basis specialty vehicles grew 144% and the call quarter.
As you can see on the left side of this chart SBA of continued to see consistent sequential growth and sales since Q2 of last year, including 14% growth over the first quarter.
Adjusted EBITDA was $8.6 million or 11, 4% of sales compared to $1.2 million or 4.6 percentage of sales and the same period last year, primarily driven by higher sales volumes.
<unk> backlog was up 79% to $95 million.
Which included a 45% growth and motor home chassis backlog and of 191% increase and our service body backlog.
Please turn of the the liquidity and outlook update on slide 10.
We remain focused on working capital and managing our overall liquidity.
While we typically see seasonally lower cash flow and the first half of the year. We saw significant improvement this year as year to date cash flow from operating activities increased $15 million versus 2020.
At the end of Q2, we had total liquidity of $120 million, including $4 million of cash on hand, and $116 million and borrowing availability under our credit current credit agreements.
Our leverage ratio stands at <unk> 4 times, adjusted EBITDA and our strong balance sheet enables us to access capital as needed to fund our operations and to continue to invest and our growth strategy.
Capex for the quarter was approximately $6 million and included investment and velocity production as well as fabrication equipment at a number of facilities, which we are using to meet increased demand and drive margin expansion across the company.
Year to date Capex was $12 million tracking in line with our expected full year range of $20 to $25 million as previously disclosed.
Overall, we are pleased with our results and our teams the ability to execute at a high level through the first half.
As we look forward, we are optimistic about the demand for our products and are well positioned to have a strong year.
That said, we are not immune to the ongoing challenges and the supply chain and labor markets and expect supply constraints and inflation to have some impact on us through at least the balance of the year.
We have taken several actions to mitigate these risks, including instituting price increases across the business expanding the supply based on managed both material inflation as well as component shortages flexing.
<unk> production as needed and continuing to be innovative and our hiring process to address the labor shortages.
With our current visibility we are confident that our performance through the first half of the year as well as the strength of our backlog puts us and are positioned to exceed our previous guidance.
With this backdrop, we are excited to raise our 2021 estimates as follows.
We expect revenue to be and the range of $900 million to $950 million adjusted EBITDA of $100 million to $110 million and adjusted EPS of $1.75 to $1.95 per.
Per share.
Now I'll turn the call back to Daryl for closing remarks. Thank.
Thank you John Please turn to slide 11.
Our results for the second quarter highlight the successful execution of our strategy and the amazing efforts of the entire shift team on.
And our commitment to quality execution innovation and investment and operating efficiencies are generating improved profitability.
The shift innovations team and their efforts on developing a new electric vehicle chassis the group.
Example of our innovation DNA.
Unleashed the tackle the critical issue facing fleet operators around the nation.
Bringing the new solution to the market that will eliminate carbon emission, while enhancing the productivity and efficiency of fleets is a game changer and.
In summary, and momentum continued and the second quarter with each of our business units performing well and positioned to support on improved growth and profitability for the remainder of the year I am proud to lead this great team and continue that.
It continues to perform for our shareholders with that operator, we're now ready for the Q&A portion of the call.
We will now begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone phone. If you are using a speaker phone. Please pick up on your handset before pressing the keys to withdraw from the question queue. Please press Star then 2.
The first question today is from Steve Dyer of Craig Hallum. Please go ahead.
Thanks, Good morning, guys.
Good morning, Steve.
You talked about price increases there is others and the industry that have talked about sort of the guidance raising guidance for the remainder of the year on the revenue side driven largely by price increases as the play into your guidance.
As of the revenue.
On March.
I think Steve when you look at it.
I think.
There is certainly an element of price and there, but I think we really think about it as our comfort with the backlog we have seen significant order growth here over the last 3 quarters.
It's put us in a good position and really in a position, where we need just need to execute.
The.
The.
As we look at chassis component availability as we.
As we've worked through the second quarter I think at this point, we feel comfortable with.
The portion of that backlog that we're being able to execute and so thats really where the increase is coming from I think price will certainly play and element and to that but more on the demand side.
And so your ability to raise them for the back half of the year I mean do you feel like the supply chain pinch the worst is behind you or do you think it will impact 2 more in Q3 and Q2.
I think there is.
I think.
It's tough to pinpoint that I think as you look at the Oems and the chassis situation, particularly in the second quarter. There were certainly shut down throughout Q2, which will have implications on us and Q3 at GM announced some of their pickup truck plants will be idled here and the third quarter and so there will be continue to be sort of ongoing issues from the chassis.
The perspective.
You've got the freight issues coming out of China, you've got just component challenges across the board, but I think where we find comfort is as is.
With the visibility that we have both from an order perspective.
And and really just our ability to execute on that.
Okay got it.
And you talked about backlog you're out more than 3 quarters of revenue without taking any more orders.
Do you have mechanisms in place to sort of protect margin and then just kind of given the.
Given the duration of that backlog and all of the uncertainty around supply chain and commodities and things like that the year end of 2022 day of mechanisms sorted.
To protect pricing protect margin there.
Yes, I think the there's a couple of things I would point to I think Daryl talked about adding rigor to some of our processes, we've certainly done that.
And.
The bill of material changes and so we've instituted that and quotes and new order activity.
When you look at our backlog in general, particularly on the fleet side of the business, we do of mechanisms and our standard terms and conditions, where we're able to work with.
With our customers if there are certain inflationary elements, where we can go back for pricing as well.
And Steve I'd add.
Back on 2018, and remember when the tariffs came in and we put in our.
The raw material purchasing strategy that is still in place.
And as we continue to move backlog out we are continuing to ensure we have adequate supply of material and we understand the pricing to put into the price of the quotes that are out there at par. So we've moved it forward we will run on.
I think it was the 6 months at the time that we move that out so we're locking and further.
And that sometimes can be challenging with the suppliers, but.
Once we get comfortable with them and they get comfortable with us it's <unk>.
The good discussion and we're both comfortable with the pricing we lock in at.
Yes, yes, that's what drove that question. Thanks for the color guys.
Thanks, Steve.
Okay and if you have a question. Please press Star then 1 and.
Next question is from Matt Koranda Roth capital. Please go ahead.
Hey, guys. Thanks.
Just wanted to see if you could just start off by talking about the bookings environment and fleet vehicles.
The it looks like the implied order flow is still very strong maybe it ticked down just a touch Q over Q.
But maybe you could just talk about seasonality and bookings and fleet vehicles, and then just tracking on the velocity and then sort of maybe mix of new orders that were velocity.
Yes, I'll take a little bit of that Matt.
Good morning by the way and I'll, let John finish so.
And.
I think.
And it shows.
The strength of our strategy and the strength of our operational team where.
As we continue to set records in revenue.
So continuing to take on additional backlog, so it's not like a delay.
And the production, which I think is important to mentioned right, we are accelerating and on <unk>.
All fronts on production and the backlog continues to grow so as I mentioned this is based on us having the right products.
At the time of our customers need them and the.
On the design and innovation that Youre looking for.
And if we continue to look at Fas. The typical walk in van plant is setting daily Records on volume monthly records on volume same with velocity as it ramps up.
And we continue to get backlog so when we typically would say the delivery.
The customers want their products and October before Halloween.
Due to the the delay and some of the chassis supply during Q2, they are asking for them all the way up through Q4, and and read through the holiday. So thats a little unique for this year and.
That's helping us with the.
The typical Q4 seasonality.
So we're excited about that and.
Johnny and I think 1 of your I think.
The only thing I would add we saw.
Really the last 3 quarters of of significant order strength and the Fps business really puts us through now and into early 2022.
And so we expect.
Expect that to continue from an order flow perspective.
It probably will slow down here and the second half of the year just as the.
Our customers really prepare for 2022.
But we feel.
Pretty confident with the pipeline that we have for next year as well as where we are from a current backlog perspective and I think.
Matt So I'm going to come back and add 1 more.
I think you know.
And as.
And if you remember about a year ago, there was some concern about.
How much of this.
Online ordering and the e-commerce was going to stick and I think if you look at our backlog and you continue to.
Look at.
The.
And the overall macro and micro.
Items in the last mile delivery.
And the growth is still there for.
This year and next year and we are.
I think of sell for probably 3 to 5 years of looking at it so.
We're excited about.
This business is going to go on and were.
Putting in cash.
Capital and team members to make sure that we can handle the growth as it continues over the next.
A few years.
Good color thanks for that and then.
And so if I heard you right I guess.
The vehicles typically seasonally see as kind of a weaker quarter and Q4 as the fleet customers kind of hold off on deliveries during their busier periods.
But it sounds like.
On the fleet vehicles revenue should sort of build from <unk> and then hold flattish and the <unk> is that the way to kind of think about the cadence of revenue per fleet vehicles for the rest of the year and what's embedded in guidance.
Yes, I think if you look at our guidance overall.
It's probably tough to parse out exactly.
Certainly didn't guide on Q3 in particular, but if you look at.
Sort of a Q2 run rate through the balance of the year is really our midpoint guidance and so between Q3 and Q4, there may be some pluses and minuses depending on the <unk>.
Component flow and chassis availability of those types of things, but we.
We feel.
And feel pretty comfortable essentially.
Essentially deliver and Q2 for the balance of the year.
Okay got you.
And then you did mentioned the supply chain and kind of a little bit tougher.
And the back half of the second quarter and it sounds like probably more chassis than anything but wanted to give you the opportunity to kind of discuss anything else that got crimped and the quarter and Howard addressing some of that stuff.
Yes, Thanks, Matt.
I will just tell you, it's up and down the supply chain, it's not just jesse's.
Okay.
And we're not unique to have.
And have some labor issues.
Thank you look around and talk to different people and I think.
Everybody is having it.
And just due to the expansion.
As we mentioned were taken John and John mentioned, it will take some alternative.
Actions and having great new ideas and on how to hire people and to keep on.
Limit the turnover and the other thing as we mentioned and as we're adding additional suppliers.
Alright to ensure that we can have the capacity as we need it because we can see the backlog.
So we're looking at it and understanding of the current supply constraints and adding on additional suppliers for the commodities that we need whether it's fasteners or fiberglass parts of the plastic parts. So.
<unk> team is really doing a nice job to keep keep out in front of that and.
And it's pretty neat to watch.
Alright, I appreciate it guys I'll jump back in queue. Thank you.
Thank you.
The next question is from Mike Swiftkey of D. A Davidson. Please go ahead.
Hey, good morning, guys and thanks for taking my question.
Good morning, Mike I wanted to.
Thanks, I wanted to turn up and by asking about some the other big news of the week in Evs and that is.
The new commercial that was announced by GM and the other day.
I'm not sure of the sizing of it and then we'll give much as far as detail.
It's the impression of the vehicle is there anywhere and the same size range of the class III and youre going to be putting out and 2 knowledge will that be the same kind of deal flow.
Sure.
And out there that will meet and upstate from and I will talk about of such as such on shift group.
Yes.
Nick.
Good question I think when we read it because there arent a whole lot of details.
Our assumption is probably and the higher classes.
And more of.
Maybe even a drive and box.
It could be the higher classes, but we're trying to understand that as you are.
But again I think I have confidence in our team and.
And and what we're doing in the class III, which is of niche space as we mentioned and Thats why we went into it because we didn't want to compete against.
The other Oems and the.
Class II space or even the people up and the class.
<unk> 5 and 6.
Okay.
Got it.
I also wanted to ask just a question about market share.
And so far this year.
On a great job of executing on the up does that mean.
Your way do you guys sense that some of the smaller players and cargo events just aren't getting it done have you found a way to to gain some share of the others Couldnt really fulfill.
I think it's.
<unk>.
Probably more of as I mentioned and the start of quality.
Our ability to execute.
Find the labor and get the products and the customers hands we've seen.
The backlog is seen.
A nice order flow from customers that.
We haven't build forward typically.
Some of them on the grocery side.
Somewhere on the delivery side.
So it's broad based and it's exciting to see great debt what.
What we've been talking on the teams about is being and we'll get the products out the door at high quality.
And customer service is paying off and.
On the conquest businesses is very nice for us and the backlog.
As well as our new technology, new products, right, the velocity and and other products.
Got it thanks, so much Gerald I'll leave it there.
Thanks, Mike.
This concludes our question and answer session I would like to turn the conference back over to Jerry <unk> for closing remarks.
Thanks, Kate and thanks, everyone for participating this morning.
Stay tuned for announcements in the next month or so on additional sell side conferences that we'll be participating in and I think we have 2 and September and then we actually have of live 1 in November.
Versus the virtual that we're all looking forward to so again, thanks for participating and have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.