Q2 2022 Shyft Group Inc Earnings Call
I N class a motor homes, our target segment of the RV market is healthy as dealer inventories remain at historic lows and our share continues to be very strong.
We expect these trends to continue for the balance of the year.
In the quarter, we launched the Red Diamond aftermarket brands to expand our luxury motor home parts and service business for RV chassis and other motor home chassis.
Our service body business, we are executing on our strategy of expanding our position as a leading national service body player.
We continue to make strides in our geographic expansion initiatives and we saw continued progress in our shallow ship thru location.
With the shift to 2023 model year products.
Demand remains robust and customers manage.
And up to replacement demand in addition to market growth.
We continued healthy growth trends in our key markets, we feel confident in the continued performance of SP in the second half of the year.
Please turn to slide six.
Blue arc.
Product development progress is on track as we hit key project milestones, we began to build prototypes and continue to solidify the supply base.
We have made considerable progress and remain on track to deliver these exciting new products in 2023.
We remain excited about the feedback we received regarding blue arc EV solutions, while attending the ACD show in May and we continue to have high levels of interest from fleet operators in other locations.
Last week at the pleasure of joining in Blue our team as they showcase the blue arc power to an EBIT delivery vehicle in Washington D. C to members of Congress and governmental agencies.
We highlighted our efforts to reduce greenhouse gas emissions.
And assist fleet operators.
Achieve their long term environmental goals.
We will have customer visits right drugs and product showcases later this year and look forward to updating you on blue arc. During the next earnings call with that I'll turn it over to John .
Thank you Daryl and good morning, everyone. Please turn to slide eight.
Revenue for the second quarter was $232 2 million down 448% from the year ago quarter, but up 12, 2% sequentially with seasonal increases and improvements in chassis availability.
Net income from continuing operations was $5 3 million compared to $17 million a year ago adjust.
Adjusted net income was $7 5 million compared with $19 million in the prior year.
Diluted earnings per share from continuing operations was <unk> 15 per share compared to <unk> 44 per share in the second quarter of 'twenty one.
Adjusted EPS from continuing operations decreased to 21 per share from 53 per share a year ago.
Second quarter, adjusted EBITDA was $13 7 million compared to $28 6 million in the previous year, while as a percentage of sales adjusted EBITDA declined to five 9% compared to 11, 7% in the same period last year.
These results include <unk> spending of approximately $7 million <unk>.
Excluding this investment adjusted EBITDA as a percent of sales was 9%.
Turning to slide nine I will review our results by operating segment.
As previously communicated we expected <unk> to have a challenging quarter driven by chassis availability impacting the production output and efficiency of our velocity and traditional walk in van product lines.
This was particularly true earlier in the quarter, but we did experience the expected improvements in chassis flow and profitability as the quarter progressed.
<unk> delivered revenue of $136 9 million compared to $161 6 million a year ago.
The decline was primarily due to reduced production volume as a result of lower chassis supply, partially offset by higher pricing.
<unk> adjusted EBITDA was $14 5 million versus $28 1 million a year ago.
Adjusted EBITDA margin was 10, 6% of sales of.
The decrease was primarily driven by volume and productivity inefficiencies as a result of OEM chassis supply.
<unk> and labor cost inflation, partially offset by pricing actions.
<unk> ended the quarter with a robust backlog of $1 billion up 53% year over year.
Turning to slide 10.
Specialty vehicle delivered another solid quarter sales were $95 3 million, an increase of $12 9 million or 15, 7% year over year with strong performance in our service body built more contract manufacturing and luxury motor home chassis businesses.
The growth was driven by strong sales volume, coupled with a realization of pricing actions.
Adjusted EBITDA was $12 9 million or 13, 5% of sales up 280 basis points compared to $8 8 million or 10% 10, 7% of sales in the same period last year.
Primarily driven by higher sales volume pricing actions and improved product mix, partially offset by material and labor cost inflation.
<unk> backlog was up 37% year over year to $135 million with growth in both motor home and surface body backlog.
Turning to slide 11, and I will discuss our balance sheet and updated 2022 outlook.
Overall, our balance sheet and liquidity remain healthy despite the challenging macro environment environment.
In the first half our cash flow from operating activities was an outflow of $36 7 million compared to an inflow of $3 2 million in the first half of last year.
These results were driven by increased inventory, resulting from chassis and component delays.
Capex for the first half of the year was approximately $10 million.
At the end of Q2, we had total liquidity of $206 million, which includes $6 6 million of cash on hand.
Current leverage ratio stands at just one one times, adjusted EBITDA, which positions us well to fund our operations and invest in our growth strategy.
We are committed to maintaining a strong balance sheet and having the flexibility to execute our growth plans.
Turning to our outlook our view of the year remains generally consistent with our prior communication, which assume that chassis supply would improve in Q2 and into the second half of the year is.
It is important to appreciate that we continue to operate in a dynamic environment, but with that said our performance in the second quarter and our visibility to chassis supply positions us to increase the midpoint of our profit guidance.
As a result, our updated 2022 outlook is as follows.
Revenue to be in the range of 925 million to $1 1 billion.
Adjusted EBITDA of $55 to $80 million, including $30 million of expenses related to <unk> initiatives.
Adjusted earnings per share of <unk> 85 to $1 41 per share.
And we continue to plan for $25 million to $30 million of capital expenditures in the year.
Overall, we remain confident in the underlying long term growth trends for our products and we are well positioned to support our customers.
We will continue to leverage the strength of the balance sheet to position the company for future growth.
Now I'll turn it turn it back to Daryl for closing remarks.
Thanks, John Please turn to slide 12.
In summary, our team remains laser focused on executing our growth strategy and driving long term value for our customers employees and shareholders.
We will continue to invest in growth initiatives, including <unk>.
Which are supported by the strength of our balance sheet.
Our second quarter results highlight the team's flexibility and resilience, while continuing to deliver on our long term strategic plan.
With a strong team and a portfolio of innovative products, we are well positioned to perform in the second half of the year and into 2023.
Operator, we are now ready for the Q&A portion of the call.
We will now begin the question and answer session.
I will ask a question you can start and when your telephone keypad.
Squeezing speakerphone, please pickup your handset before pressing the keys to withdraw your question critical starting to Echostar.
At this time report momentarily to assemble our roster.
Our first question will come from screening.
Craig Hallum you May now go ahead.
Morning, guys. Thanks for taking my questions.
Good morning, Steve.
I guess I'll start with supply chain.
I guess first of all is it primarily chess user or are you seeing.
As there are other other disruptions as well and as it relates to chassis clearly they are starting to flow a little bit better would you say it's at the rate that you had hoped three months ago, when we talked.
Yes, I'll take that Steve.
So it is primarily chassis supply.
We are seeing it in our own purchases, but we're being able to manage through those.
By as we've done in the past when volume increases rapidly by bringing on additional suppliers.
And I think John mentioned to some of the inventory.
The levels are higher waiting for some of those components. So we are managing through that but.
Ill chassis, it's difficult for us to build.
And on your can you help me your second question again.
It was just if you're seeing sort of the increase.
So maybe at the rate.
But you had hoped or thought.
Yes.
I think on the <unk> side.
Probably.
We were.
More I.
I guess happier with those.
GM was starting to produce more.
We're starting to ship some more but the real achilles' heel we had throughout Q2 was the DCP.
We should walk in van chassis.
And.
They're running about where they typically would run so and they've been doing that I think last time I mentioned.
Typically three three deliveries would create a trend, but we want to see three months or more of a trend here on the chassis and they continue to.
We have some ups and downs, but overall they are averaging about what they have in the past. So we're excited about that moving forward.
Okay.
Looking at your backlog.
Still a year of revenue long, which is.
Second best ever it was down a little bit quarter over quarter, just curious if youre seeing any any cancellations in the customer base and sort of how pricing is going on your pricing out a year.
Yes, I think from a.
From a customer cancellation standpoint, I think it's an interesting environment, we did see call. It a modest level of cancellations in the quarter, but in a number of those cases, we actually had other customers pick up those chassis and so as we've discussed in the past a lot of the movement.
And we haven't seen a lot of movement, but when we do it's really related to chassis timing and whether that meets customers' delivery needs.
In terms of when they get the vehicle and so.
We expect maybe some continued movement there as we go forward, but I think to your point, we're still looking at a backlog that extends beyond a year in our SCS business right now until really comfortable with the demand the underlying demand in the markets that we're playing.
I think from a pricing perspective.
We've talked about going back into the backlog multiple times.
In evaluating sort of cost inflation in those those types of items and being successful in repricing that our teams continue to look at that on a very regular basis, and we certainly have ongoing discussions discussions with customers.
<unk>.
When needed in terms of making sure that we are.
We're maintaining profitability.
Got it you talked about when there's cancellations is typically because you can't get the chassis to meet the timing demand.
Is your perception that theres any competitors or anybody else thats, having an easier time are better positioned than you guys.
No not at this point I think.
The chassis supply is impacting the entire industry.
We don't see customers jumping from from us to others.
So it's really about when that that chassis comes in I think.
As new model years come out.
Our allocations come out for 2023, we'd probably see a little bit more movement.
But we're not seeing any significant share shifts.
Yes.
Certainly not away from us.
Got it last one for me and then I'll pass it along as it relates to Blue arc, just curious anecdotally sort of what's the response been from some of your bigger.
Ice customers are they are they testing this and then as you look.
Next year, I mean would you anticipate this being sort of a first half of the year.
Revenue generator or more second half okay.
Okay.
Steve. Thank you so on the product and the customers.
So I think as a reminder, our poc's are done.
As I mentioned we're in.
Starting to build prototypes I think we have three of them started.
But it's interesting we have had requests from one of our customers.
They want us to get them a vehicle before the end of the year.
They're testing.
Plan.
Have a couple of others and I think one other they are bringing in so.
We're making our effort to get that vehicle ready and get it to them. So they can put it into their testing.
But our plan is to have the vehicles.
Protests built.
And on the road this year.
I think we will have our second plc.
We'll be at the track later this month.
Sorry later in August .
And by the end of the month, we should have some idea on a range, which we're excited to get that.
And then we'll build the demo units probably later this year into Q1, then get them into the customer's hands.
As we mentioned before production should be.
Starting in the middle of the second half of 'twenty three.
So I don't think well see any revenue until later in the year next year.
Great very helpful timeline, Thanks, Darryl and good luck.
Thank you. Thank you.
Our next question please.
Our next question will come from Matt Koranda with Roth capital.
You May now go ahead.
Hey, guys. Thanks.
Wanted to follow up on the Fas backlog commentary I just wanted to see if you could put a finer point maybe on.
Why youre seeing some small level of cancellation with fleets.
I guess my assumption was there is a pretty good amount of pent up demand, that's really tough to get into the back of the line I'd say.
<unk> orders.
So.
Any further commentary or just color on what youre hearing from customers would be super helpful. And then what conditions do we need to see to kind of start to see order flow pick up again, obviously with the understanding that the macro backdrop is pretty weak here.
But.
What are you hearing from folks in terms of when their appetite to increase orders.
Would occur.
Yes, Matt I'll start and maybe John can add in so.
I think we've mentioned it.
In the last call right. When we had some deterioration in the backlog, mainly because customers will put in orders with us and not have the chassis assigned to them from the Oems.
So when the Oems look at who they are going to fill the orders too it would be people that had chassis committed to them. So that was some of the change other parts of the changes when some of our customers look at it and they can't get vehicles ahead of the.
Busy season.
Or they are not getting the proper allocation from an OEM, let's say on a transit van.
Ram Pro Master they would fully orders out so.
It's nothing Steve had a similar question and hopping over to other chassis. They just can't get the chassis that.
They expect to get for the year for their orders.
You can take the second half.
Other piece, there, particularly when we had the right.
We saw the OEM production gap.
March and April I think is the reallocated their production schedule for the balance of the year. There was some some falloff for that which had some downstream impacts and so.
Again, I don't think.
Demand is necessarily.
An issue for us, particularly when you look at how far out our backlog is.
Okay, that's fair.
Any any significant.
Sort of chassis platforms to call out as maybe causing the issue or is there one you could pinpoint or is it sort of across the board.
When you look at sort of the major chassis platforms you build on.
I think right now.
All of them are producing at a higher rate than they did in Q2.
DCP was the real.
12%, we had problems with in Q2.
We mentioned when.
We'll wait for module and then the fuel tank quality issue. So.
Those are resolved now and.
And we also talked about how we went out and.
<unk>.
Re-engineered reverse engineered and when assuming for modules, we can produce vehicles.
So on both accounts right, we have the ones that we're building and then we have the.
Normal supply coming in from.
DCP so.
I think they are in good shape there.
We're running.
And that doesn't mean that they won't have another supply issue in the past, but the last since last quarter, we've seen they've hit everything they told us and they are starting to.
To hit the numbers that we typically would see I think on the <unk>.
Some of the other cargo van type class two vehicles.
Both of them are now producing at rates that we expected and we're receiving vehicles. So I think.
Im not going to say, we're out of the woods, yet, but we're seeing nice order flow nice chassis flow I mean and.
Hopefully it will continue through the rest of the year, we're positive that on our numbers and look forward to getting.
Getting back to some.
A normal business.
Great to hear.
And then maybe just.
On the M&A front curious.
Just given that we've had several months of public market volatility.
I would assume.
There may be some choppiness in private.
Competitors are private concerns that you may be looking at is potentially strategic.
Strategic acquisitions I'm curious what you are seeing on the M&A front Darryl.
Just in terms of anything shaking loose anything in pending are interesting are heating up.
Just given sort of the market weakness that we've had for the last several months.
Yes.
I think when we look at that Matt.
We're still looking right, we do think that.
As you mentioned.
Might be some better buys.
Later in the second half of the year. So we are monitoring that.
The number of.
The companies.
One in particular that we put a pause on because they had the same issue that we have with chassis. So we didn't want to continue to.
Process that.
<unk>, we're still in communications with them. So we are continuing to look around and I think as we've.
Normally would if it's opportunistic we're going to jump on it but we also think that there might be some more opportunities later in may that are better buys.
Got it I'll jump back in queue here guys. Thank you.
Thanks, Matt Thanks, Matt.
Our next question will come from helix function with Raymond James You May now go ahead.
Hey, good morning, everybody.
Turning to <unk> I'm wondering fields.
Hey.
I know a lot of questions around the orders and backlog.
Daryl or John I was hoping maybe we could take a step back and I was hoping you could talk about maybe how you see parcel last mile vehicle demand longer term.
What I'm really trying to understand is are your customers coming to you at all about longer term capacity conversations whether thats ice or bep.
So what I'm really getting at you mentioned the replacement demand.
Post office came out that theyre going to buy almost 35000 off the shelf commercial vehicles I know they do buy a lot of sprint charges, but I am curious maybe.
Maybe how those conversations with your customers are going and if you could just talk directionally about longer term implications.
Yes, I think Phil.
On the chassis side of it all of those conversations are typically with our customers in the OEM chassis providers.
But the feedback we're getting Brian as we mentioned before.
They've not been able to get their typical replacement vehicles.
For three years now two and a half years.
2021, and so far this year into 2022.
So.
Couldn't replace the vehicles they had they couldnt get vehicles to handle the growth that we've seen and then when we drive around to the depots right near each of our locations, which we typically have people do it.
See a lot of rental vehicles.
The parking lot instead of the brand name of the company.
So I think as we mentioned in the previous call we see this.
I don't want to call it pent up demand, but theres been a lack of supply.
That will continue I think it's known as adding capacity we are checking on that.
So it's going to take a little bit of time for this.
Supply shortage, if you will over the last two and a half years to get back to where the customers could be.
Placing their fleets on a regular basis and buying for growth. So.
I think it could be.
Probably a two to three year.
Run until they get back to normal.
About the rental units in their fleets.
<unk> you want to add and just to add on that I mean, our expectation is that that.
Fleets continue to grow I think e-commerce trends.
While not necessarily linear.
Linear.
The expectation is that continues impacted volumes go up over time, and so I think that's positive from a fleet perspective I think.
Fifth tier USPS question.
Yes, I think we will see how that plays out up there are a couple a couple of items that came up there one on <unk> one on commercial off the shelf.
Upsetting vehicles for them today, and so certainly it could be an opportunity for us as we move forward.
But probably early days on that one.
Okay. That's helpful and then it sounds like on the EV side everything is sort of on schedule. John I was hoping we could maybe get an update on sort of your total cost expectations. I think previously we had talked about $50 million to $75 million with maybe a 60% R&D mix.
Curious if thats changed at all now with the power cable or how youre thinking about it maybe going into 2023.
Yes.
Investment.
Matt.
Which we put out on the class eight vehicle remains consistent and so we continue to to your point to be executing along the development milestones.
And are in line for our production here in the second half of the year.
We continue to refine production plans and those types of things and so the numbers may move around a little bit, but our expectation is that we're still.
Still in the range that we previously communicated.
Okay. So put another way that'll R&D expense should continue to kind of ease into 'twenty two 'twenty three as we think about the back half of 2022.
Hi.
Yes, I think there will certainly be a step down as we get into 'twenty three.
Okay and then.
Lastly, the specialty vehicle margins looked really great.
I'm curious if you could maybe comment on what specifically drove that and how you may be thinking about margins for the back half of the year in that business.
Yes, I think the.
They had another great quarter, and they've really put a string of great quarters here together.
I think we talk.
Talked previously about our service body strategy in particular about being able to acquire businesses and create value through lean initiatives.
And so we've been able to see the supply chain or the production benefits of that over time in terms of margin expansion and our teams will continue to evaluate that.
Certainly been in a position, where we have been able to drive pricing into those markets as well and so we would expect that to continue here into the second half of the year I think motor.
Our home business is a similar story in terms of just operating efficiency that we've been able to get into the business and contract manufacturing, particularly with the launch.
The F series.
I think that was in Q4, we've seen volume increases and so across the board we've been able to drive operating efficiencies while also.
Gaining leverage benefit from the growth that we're seeing in the markets.
Okay I'll stop there I really appreciate it.
Thanks. Good luck. Thank you. Thank you Luke.
Our next and last question will come from Mike Smith with D. A Davidson you May now go ahead.
Hey, guys good morning, and thanks for the time.
I wanted to maybe ask another question about the backlog and the situation there.
Maybe just.
To summarize all your answers today is it.
<unk>.
With backlogs downside at this point, it's more of a sigh of relief given how high they were.
Can you give us a sense as to.
What number of months would you like to have in the backlog on a more normalized basis.
Probably now 13% to 18 months here.
What makes more sense for you eventually for things to kind of settle out.
Yes, I think historically, we've operated in that four to six month range, which is <unk>.
Probably.
Okay.
Where we can be.
<unk> so.
I think eventually we will get back to that range I don't know if I would say call the second quarter necessarily relief, but remember we did come off record orders in the first quarter.
And so I think from a fleet planning perspective, as well as an OEM chassis allocation perspective, that's really done for 2022 and so the order books will start opening here for 'twenty three out.
The next couple of months and so we would expect to see.
See some activity from that perspective, but.
We don't necessarily view it as core.
Call it anything abnormal I think.
The point, we made earlier I think the demand remains strong and our expectations and sort of the long term fundamentals of the markets remain healthy and so we feel like we're in a good position from that perspective.
Great Thanks for that.
I also wanted to ask about maybe the back half of the year guidance and.
And the cadence here.
Assuming there is no.
We have version two.
Who knows all the Texas by issues and things kind of trend back in the right direction as they have been.
Is it fair to say that we'll be seeing sequential improvements.
<unk> <unk> and even the first part of 2023 again.
Following these steps backward.
On the supply chain.
Yes, I mean I think.
We're seasonally a little bit higher in Q3, typically and so this is not quite a normal year. So.
Maybe a little bit flatter in the second half of the year than what we would typically see but certainly from a run rate perspective as we.
As we get into the second half it will feel a little bit more normal and we expect that to continue into 'twenty three.
Great.
Got it and then maybe I wanted to ask another question about the.
Bill that came out I think it was yesterday with some new subsidies.
Sure.
<unk> and <unk>.
What that means for blue arc. It sounds like it has to be a class for a larger so blue arc that qualify for the largest subsidy, but there is a decent size for 14000 pounds under.
I'm curious if you can tell us.
That could be a material driver if that bill passes.
For the first wave of <unk> sales late next year.
Yeah, Mike I'll take that.
I think it's too early to bills out.
As we reduce in D C.
Yeah.
Last week.
I think there is a lot of money floating around whether it's at the federal level or state level.
We do have teams working on it.
I think one other thing to remember is that.
We work, we will have a class five vehicles will shortly after the class III launches so.
And it doesn't mean, we won't be excluded from that so we're going to try to move into the class four and higher range as well so.
It's early in the Bill.
It takes some time to shake out, but we will definitely be.
People looking at it and trying to figure out how it can help us.
Let me just squeeze one last one in here I wanted to get a sense as to how things are going early stages with them.
With the Red Diamond brands.
I'm curious how.
How it's going but also is this the kind of brand new initiatives that can be expanded to all your products.
Therefore efficiencies or just to have a brand behind your parts and service more broadly.
When you take the financial question I think.
It's early days, but it's an opportunity for us to sort of expand the view of what our parts and service has been historically right. I mean, we've traditionally been focused on serving Spartan RV.
Jesse customers and so this provides an opportunity for us to work with other suppliers and manufacturers.
To expand that into other chassis providers and so we think theres long term value there and certainly have expectations of that but in the short term certainly seen some positive strides but I.
I would say it's early days.
And Mike on your question of our crushing of our brands.
I don't see that I think this is going to be strictly in the motor home space.
Those are the products that have because.
People are.
And utility Master for some type of service product, it's mainly shelving units or something like that that they built and they have the expertise to build it there so.
Right now it could transform into that but right now I think it's going to be just on the motor home side.
And maybe into the service body right because that's both of those are under Steve but.
I don't think Theres any plans on the drawing board for that yet.
Okay, well, thanks for that color okay. Thanks for the time.
Alright, Thanks, Mike.
This concludes our question answer session I would like to turn the conference back over to Randy Wilson for any closing remarks.
Thank you operator, a replay of our call will be posted on our Investor Relations website.
Also please see the Investor relations website for details regarding future investor events, including the Raymond James and da Davidson conferences.
Thank you for your interest in the ship group and with that I'd like to conclude today's call. Operator, you may disconnect the call.
Conference has now concluded. Thank you for political his presentation you may now disconnect.