Q4 2022 Shyft Group Inc Earnings Call
Good morning, and welcome that's group's fourth quarter and full year 2022 conference call and webcast.
All participants will be in a listen only mode until the question and answer session of the conference call.
As a reminder, this call is being recorded at the request of the <unk> group and if anyone has any objections you may disconnect at this time.
I would now like to introduce Randy Wilson, Vice President of Investor Relations and Treasury.
Mr. Wilson you May proceed.
Good morning, and welcome to the shift group's fourth quarter and full year 2022 earnings conference call joining.
Joining me on the call today are Daryl Adams, President and Chief Executive Officer, and John Doyle, Our Chief Financial Officer.
Their prepared remarks will be followed by a question and answer session.
For today's call. We've included a presentation deck, that's been filed with the SEC and is also available on our website.
Before we start please turn to slide two of the presentation for our Safe Harbor statement.
Today's conference call contains forward looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied.
All known risks that management believes could materially affect our results are identified in our forms 10-K, and 10-Q, which are filed with the SEC.
We will be discussing non-GAAP information and performance measures. We believe are useful in evaluating the company's operating performance.
In addition, the results discussed today will refer to continuing operations unless otherwise noted.
During today's call, we will provide a business update before moving onto a more detailed review of the results and our 2023 outlook. We will then open the line for Q&A.
Please turn to slide three and I'll turn it over to Daryl Adams.
Thank you Randy.
Morning, and thank you for joining us to review, our fourth quarter and full year 2022 results.
This past year presented numerous challenges in our supply chain that impacted our operations, but I am proud of the team's ability to execute and close out the year on a high note with solid year over year growth in both sales and adjusted EBITDA in the fourth quarter we.
We built our agility and nimbleness in our approach to operations.
Last year, we saw the benefit of this approach is our team effectively navigated and rapidly evolving operating environment to deliver value to our customers.
Turning to slide four.
State you are in a financial summary.
The team generated a record $1 billion of sales in the year up 4%.
Led by growth across our specialty vehicle portfolio.
After a challenging first half chassis supply has stabilized and we saw significant sequential improvement in profitability there.
Teams were able to improve output.
For the full year profits declined as we made strategic investments in Blue arc E V and manage through supply chain shortages that impacted operational efficiency.
Overall, we achieved adjusted EBITDA of $71 million, which included $27 million of EV related expenses.
Turning to slide five.
I'm excited about our Blue Arc E V program. The team continues to make good progress remains on track to our original development timeline.
We continue to receive favorable customer feedback and positive results from our developmental testing.
Which gives us confidence that blue arc will help lead the evolution of commercial fleets towards zero emission vehicles in the coming years.
Let me update you on recent results of the Blue our team's efforts as we prepare to commence production in the second half of 2023.
In January we completed the acquisition of XL fleet.
Which enhances our capabilities to accelerate further innovation at Blue arc with the addition of a highly talented group of engineers and technical experts.
We recently announced the selection of Charlotte, Michigan, but initial blue arc production site.
Which includes a planned investment of $12 million for Blue arc production and $4 million for other campus enhancements to support future growth.
We have received E P certifications and completed air resource Board or are testing with positive results and are awaiting final approval.
We expect the final test results will demonstrate vehicle performance that exceeds the requirements of our customers and differentiates us from our competition.
In the coming months, we expect to.
Normally receive arb certification qualifying blue arc for zero emission vehicle incentives.
Continued to demonstrate sorry.
Sorry continued demonstrations of the Blue arc vehicle with key customers and deliver field testing vehicles to validate performance.
Expand our national dealer and service network as we continue to have meaningful discussions with key partners as we look to support our fleet customers and begin initial pilot and production builds.
While the initial development efforts have focused on class III.
Due to the enthusiasm around our vehicle we've accelerated our product roadmap as a result, we have made significant progress in developing a class five cab chassis with flexible body options.
The class five cab chassis will be honestly, that's a N T. A work truck week in March.
Our team looks forward to showcasing this important product with you.
Please turn to slide six.
We remain confident in how we have strategically positioned the company in terms of the end markets that we serve.
Given the dynamic operating environment I want to provide additional perspective on how we are viewing these markets for each of our business segments.
Starting with fleet vehicle and services business.
Long term favorable demand trends for North America parcel remain intact as the secular shift to E Commerce continues.
According to industry estimates domestic parcel volumes will continue to drive demand for our delivery vans as.
As we sit here today, we are cautious in the near term outlook as customer feedback and external announcements have been mixed given macroeconomic conditions.
Which may create uncertainty with fleet operators and influence their near term capital spending plans over time.
Base stations are aligned with broader industry reports that there is an increased level of long term demand for last mile delivery vehicles, and we like how we're positioned.
Entering 2023, our backlog provides good near term visibility.
We are working through orders to reduce lead times towards more sustainable levels, and we will continue to flex our operations as appropriate.
Turning to our specialty vehicle business.
Our strategy to invest in infrastructure related businesses continues to pay off as service body and contract manufacturing are performing well.
As new construction projects get underway contractors and service providers invest in their fleets to meet the demand of these projects.
Excess of our infrastructure strategy as evidenced by their strong 22 performance and improved backlog position entering 2023.
Turning to our motor home chassis business, the retail demand and class a luxury motor coach space that we serve remains more stable than the broader RV market, but unfortunately after years of robust retail growth the broader RV industry slowed in 2022. This softening has resulted in elevated dealer inventory levels.
<unk> of smaller motorized and towable unit, which.
Which has limited the ability of dealers to stock more expensive class a luxury motor coaches as a result, our motor home chassis backlog has declined year over year.
We remain excited about our competitive position as our market share increased again in 2022% to 33% and the greater than 400 horsepower diesel class up two points year over year.
This progress has been driven by continued investment in innovation and aftermarket parts and services has helped offset the slower industry market conditions.
Overall, we have industry, leading brands that are positioned to win in the markets. We serve we remain confident in our team's ability to manage through uncertainty, but continue to remain cautious about the dynamic macro environment with that I'll turn it over to John to discuss our financial results beginning on slide seven.
You Darryl and good morning, everyone. Please turn to slide eight and I'll provide an overview of our financial results for the fourth quarter of 2022.
Overall, we are pleased with the improvement we experienced in the second half as well as the performance to close out the year our.
Our team delivered strong results in the fourth quarter. Despite the continuation of supply chain delays inflation pressures and labor challenges that impacted us in our industry throughout the year.
Sales for the fourth quarter were $302 million up 9% from the year ago quarter.
Net income from continuing operations decreased 13% to $17 $8 million or <unk> 50 per share.
The year over year comparison was impacted by increased <unk> spending operational inefficiency driven by supply chain issues and a favorable onetime tax item in 2021.
Turning to our adjusted financial results on slide nine in the fourth quarter, we improved adjusted EBITDA to $30 $7 million or 10, 2% of sales up from $26 $6 million or nine 6% of sales in the fourth quarter of 2021.
These results include <unk> spend of $7 $6 million up $3 6 million from the prior year.
Excluding blue Archie V spend adjusted EBITDA was 12, 7%.
Up over a point and a half year over year.
Adjusted net income improved to $25 million compared to $22 million in the year ago quarter, while adjusted EPS Rose to 58 per share from 56 per share last year.
I'll now walk through our fourth quarter results by operating segment, beginning with fleet vehicles and services on slide 10.
The F. B S team delivered strong growth of 17% and adjusted EBITDA of 66% as more consistent chassis supply enabled enabled improvements in production output.
While overall chassis supply was stable in the second half, we continued to face component shortages, which impacted our schedule drove inefficiencies and reworking our operations and pressured working capital.
<unk> achieved sales of 212 $9 million up 17% compared to $182 $6 million, a year ago, marking solid sequential and year over year growth.
<unk> adjusted EBITDA for the quarter was $27 $7 million versus $26 $2 million a year ago.
Adjusted EBITDA margin was 13% of sales compared to 14, 4%.
In the fourth quarter last year.
Please turn to slide 11 for the specialty vehicles segment overview.
S V capped off the year with another fantastic quarter.
Our service body and contract manufacturing businesses remained strong and continued to perform well, but overall <unk> sales were impacted by a softening of demand for luxury motor home chassis.
Fourth quarter sales were $93 $2 million, a 2% decrease versus the prior year.
Adjusted EBITDA was $15 $9 million or 17, 1% of sales compared to $10 $3 million or 10, 8% of sales in the same period last year reflect reflecting strong operational performance and the impact of pricing actions implemented earlier in the year to recover inflationary costs.
Please turn to slide 12 for our 2023 outlook.
As we look forward into 2023 we remain positive on the company's ability to perform but want to be cautious given the potential impact of near term macroeconomic headwinds across industries.
That said on the top line, we expect to exceed 2020 two's record year with continued growth in delivery and service body offsetting softness in luxury motor home.
We expect to see strategic growth initiatives pay off with an exciting S V geographic expansion announcement in the coming weeks as well as the first revenue from Blue arc later in the year as we go into production.
From a profitability perspective, we expect strong near term, we expect strong year over year growth. Despite incurring remaining class III R&D investment and initial startup costs to support the production launch of our Blue art vehicle as well as the incremental expenses driven by the <unk> acquisition.
Given these underlying drivers our outlook for 2023 is as follows.
Sales to be in the range of 1 billion to $1 $2 billion, representing 7% year over year growth at the midpoint.
Adjusted EBITDA of 70% to 70 to $70 million to $100 million, representing 20% growth at the midpoint.
Adjusted EPS of <unk> 97 per share to $1 59 per share, which includes an effective tax rate of approximately 25% and shares outstanding of approximately $30 million.
Capital expenditures are expected to be approximately $35 million and.
Free cash flow conversion as a percentage of net income is expected to be greater than 100% as we work down working capital.
Please turn to the capital allocation update on slide 13.
We remain disciplined in our approach to capital allocation with a focus on utilizing internally generated cash to fund our operations and growth initiatives in the fourth quarter, we generated $19 million in free cash flow.
We maintain a robust capital structure with net leverage ratio of just <unk> 93 times adjusted EBITDA at the end of the year.
We also maintain a line of credit of $400 million, giving us strong access to capital to invest in growth and growth.
As we have previously noted our recent investment focus has been on attractive organic growth opportunities, including Blue arc EV solutions and.
In addition, we continue to evaluate M&A opportunities and maintain an active funnel and a disciplined M&A evaluation process.
We remain focused on pursuing efficient capital return of capital to our shareholders, including a consistent dividend payment and assessing share repurchases as appropriate.
In conclusion, we are committed to maintaining a strong balance sheet as a foundation to support strategic investments in our future, while taking a disciplined approach to efficiently return cash to our shareholders now I will turn the call back to Daryl for closing remarks. Thank you John Please turn to slide 14.
This shift group, we have created a compelling industrial growth company.
Our priorities start with a culture of customer focused innovation, we win by delivering market, leading solutions that address our customers' needs.
Operational excellence drives efficiency in our operations quality in our products and differentiates us from our competition.
Lastly, our financial strength provides us with the flexibility to invest in long term growth and strive to deliver returns ahead of our peers looking ahead.
We are excited about our growth prospects, especially with the beginning of the Blue arc production later this year with the right people and the right processes in place to execute on our strategy and deliver for our customers and shareholders with that operator, we are now ready for the Q&A portion of the call.
We will now begin the question and answer session.
Quick question you May Press Star then one on your telephone keypad.
Yes.
Picasso, please pickup your handset before pressing the keys.
To withdraw your question please.
Thank you.
At this time, we will pause momentarily to assemble our roster.
And our first question comes from Greg Lewis.
Please go ahead.
Yes, hi, Thank you and good morning, everybody and thanks for taking my questions.
Alright, My first my first question was around kind of margin progression and congratulations on the nice sequential.
Gross margin increased in Q4 kind of as we as we look at as we kind of think about your.
Youre adjusted EBITDA range.
Guidance for next for this year.
How should we be maybe thinking about March gross margins.
Now sequentially going forward in and is there any kind of impact as I guess, we start delivering blue arcs later this year.
Yeah.
Yeah.
Yeah, Greg Thanks for the question.
I think as we look at it.
As we look at the overall operating environment, where we're expecting something that resembles a you know.
The second half of next year, and so we're not expecting any of the operational challenges.
You know some of the inflation and inefficiencies that exist to perfectly right themselves. As we are as we begin the year here and so you know there we are expecting to see gross margin improvement you'll see year over year, we do have some margin expansion from an EBITDA perspective.
But I think the operating environment is going to continue to remain challenging as.
As we work through the first half of the year I think that said that that is where our teams are focused in terms of.
Driving and fixing those inefficiencies are and getting better flow through.
Through the supply base.
And so we will see progression throughout the year, but it's it's a we're not taking sort of an aggressive position here in the guidance on margin expansion.
Okay, great. Thank you for that and then.
Yeah, I mean I.
I guess rolling out our classified Blue arc was always part of the plan.
Since you embarked on the <unk>.
Move into Evs, Yeah, I guess, as we think about that and I guess the.
The rollout of that.
Given given the existing footprint.
Michigan, where that's where we're I believe we're building the blue arcs over the next few years.
Should we think about that now that we have the.
Classified vehicle that I guess, we plan on rolling out over the next couple of year on year.
Hey, Greg you broke up a little bit this is daryl.
The vehicle that will be shown a N T a was.
It was not part of the original plan part of the original plan was the class III and classify walk in van this is.
Something different it's a cab chassis.
So we haven't announced any type of production timing on that.
Still early in the development phase, but Oh, we're thinking it's going to I.
I don't want to say steal the show will be pretty excited on the MTA and once people see it in the opportunities that it would have for municipalities and other.
I would say city type trucks that might need it because it has it does have a flexible.
Options on the back whether it's a flatbed a box truck or even a some type of a dump for landscaping. So.
This part wasn't in the original plan, but we're excited about the enthusiasm we're receiving from customers about it.
Yeah.
Okay, great. Thank you very much for the time.
Okay. Thank you.
Okay.
The next question comes from.
Ocean of Raymond James Please go ahead.
Hey, good morning, everybody.
Good morning Felix.
Hey, I just wanted to clear up a couple of things. So you reiterated it too late to production start for Blue arc and I just wanted to be crystal clear and maybe I missed this but is the associated <unk> revenue included in the guidance and is it included in the backlog today.
Uh huh.
In terms of the backlog. It is not included in the backlog today I think in terms of the guidance. We're expecting 200 250 units, which is consistent with what we've previously talked about.
And that is in that sales number.
Okay, and then you know what I'm trying to I guess better understand John is.
Sort of the implied R&D cost for 2023 can you maybe just walk us through how you're thinking about that bucket between the excel fleet between the class III.
And now it sounds like there might be some incremental R&D associated with the classified just trying to understand the buckets here John .
Yes.
I think if you go back in and what we previously talked about was $30 million of spending last year something in the 10 to 15 range this year I.
I would say we're trending towards the higher end of that 15 as well as having some carryover from 2022 just based on the.
The fact that we ended up spending about $27 million and so that puts you in the $18 million range.
And then as we noted in the deck, you've got $8 million of incremental spending from from the XL fleet acquisition that it was really cost that we contemplated adding throughout 'twenty three and into 'twenty four and so it's more of an acceleration of cost, but we saw that as a great opportunity for us to bring in a talented group of people.
Two to really stabilize that business as we as we like the opportunity as we've talked about we view that as a very transformational project for us so.
I think if you look at the overall impact of easy on US this year, it's in that 25% to $26 million range with.
But the biggest sort of variance being being the ex the additional backhaul fleet.
Versus what we previously talked about.
Okay, and then I think in the prepared remarks, you mentioned some startup costs associated with the ramp up of production and I know what the at the EV day last year, we had talked about being.
Sort of around breakeven all land E can you update us on that would it be safe to assume the $8 million XL is an incremental hit to the breakeven I'm just trying to kind of understand how youre thinking about that.
That earnings potential relative to what was originally stated last year.
Yes, I mean, I think when you look at that approximately breakeven number I think again, we're probably at the higher end of that R&D range versus what we had originally contemplated you've got some carryover investment again, the $3 million, which isn't incremental to the program, but it is incremental to 2023 and then you have the XL fleet cost on top of that.
And so that's how I would bridge that I think to two we had always contemplated startup costs are probably coming in a little bit higher than we expected.
As well as you know there is some.
Call it incremental R&D costs associated with the with some of the classified activity that Daryl talked about but the big drivers are excel fleet and then just the development being closer to the higher end of the range.
Okay got it and then can we just talk about the strategic rationale behind the Excel fleet deal I'm, just trying to understand sort of.
You know how it fits in it sounds like a bit of an acceleration, but I am curious if theres any capabilities that you brought in house that you didn't have before.
Just kind of trying to understand that that would be a little bit better.
Yeah, maybe I'll start Felix Daryl can jump in you know again I think we looked at this as a.
A talented group of engineers bolt on the electrical side on the battery side on the telematics and software side that we are we were building internally and also using some third parties to support and so this was really an.
An opportunistic play for us to accelerate talent into the organization that will help us not only get through sort of the last development phase here, but also.
Again provide that stable.
For us as we move forward.
Felix.
Good question, the only thing I would add to what John mentioned is.
Bringing in.
Engineers that arent familiar with E V, which they're hard to find right. Because there is a it's new new technology that everybody is bringing on to grab people engineers they have that talent already.
He's going to help us leapfrog others in the market in our opinion and we thought it was a great opportunity.
And I'll tell you what so far it's a it's absolutely amazing the progress they've made and how they've helped so we're really excited about where it's going to take us throughout the year and like John said, it's accelerated but we thought the cost benefit was worth it and.
Instead of trying to bring in new people. So it's.
In our opinion is paying off right now and we're excited about it.
Okay got it and then just my last one if I could and maybe this is better for John but I appreciate the capital allocation update.
You know I think you noted that your that your free cash flow conversion as a percent of net income should be higher than 100%. This year I imagine a working capital plays into that but.
But I'm just curious in the guide it doesn't seem like.
You know youre accounting for necessarily any any decreases in share counts.
Or even interest expense for that matter.
I'm just curious is there anything baked in from a from a capital allocation perspective in the guide and then how would you think about deploying that incremental free cash flow.
Yeah, No I think it's a good question I think certainly we have not contemplated.
Any repurchase activity and the share count that we put forward.
But given the flexibility we have we've got $242 million under authorization.
At this point, which.
We will continue to remain flexible on that I think from an interest expense standpoint or from a debt standpoint in general where we are.
Levered under a turn we're obviously very comfortable with being in that range.
So we'll balance sort of debt paydown with with with other deployment options I think.
Interest expense in general I think is a bit elevated versus where we ended 2022.
Just based on really interest rate changes so.
But again, we've got flexibility and we've got a strong balance sheet to be able to to deploy it appropriately.
Got it I'll pass it on thanks for the time.
Felix.
The next question comes from Steve Dyer of Craig Hallum. Please go ahead.
Thanks, Good morning, everybody.
You had talked as it relates to the backlog.
Talked about how you anticipated that sort of coming back down to more normalized levels, maybe a couple of quarters versus a year plus.
Sort of a near term are you seeing any change you know what are you seeing any sort of move outs.
At her into the backlog or cancellations or would.
Would you say, it's sort of a burn down right now it's just less order intake for you now for five quarters from now.
Yes, I think I mean, the biggest impact I would say is the less order intake with.
With also when chassis supply freed up in the second half of the year, obviously, allowing us to produce at.
At an accelerated rate and so I'd say those are the two main drivers I think as Daryl noted in his comments there there is a ton of uncertainty out there in the environment.
We are.
We are having.
I would say, we're having favorable discussions with customers about opportunities from an ordering perspective, and there's some really attractive.
Through fleet buys out there and then we're having conversations with dealers are dealers and customers as well about potentially delaying or moving on.
On orders just given some of the either floor plan or interest rate dynamics that are out there in the marketplace and so.
As we look at that collectively.
We do remain optimistic.
Certainly to the to the upside of where we were from a midpoint perspective, but we do want to be cautious just because there is.
So much uncertainty out there in the environment.
Yes, I guess you know even even looking when you normalize this year for XL, we those costs and sort of the incremental <unk> cost the <unk>.
Guidance, my math sort of implies that the core businesses, maybe even a little softer in 2023 than it was in the second half of 2022 so I mean does that is that just sort of conservatism on your part given all the moving parts or or are you seeing something you know in specific sort of customer conversations recently that.
As you pause.
I would I would say the one piece that is softer than what we would've expected in the fourth quarter is on the motor home side of the business.
And then I would say on the rest of the portfolio we remained.
Particularly on the fleet side, we remain sort of balanced as we monitor the market.
You know like we've talked about in the prepared remarks, the service body business as well as contract manufacturing continues to be fantastic growth for us and so.
We do feel like we're balanced but again cautious as we as we look at all the <unk>.
I'll call it noise that's out there in the system right now.
Yeah got it I guess, along those lines, we've been talking about <unk>.
Supply chain disruption for so long or we come to the point, where you know I guess near term maybe demand uncertainty is a little bit more of the challenge right now our supply chain is still less than ideal.
I mean, I think it's a little bit of both.
But I think.
I think there is there.
12 months ago, I don't think.
We would've been talking about <unk>.
Demand problem. So I think some of it just might be.
The headlines and those types of things that are out there that people are in customers and the industry is reacting to in general but.
I'd say demand is maybe a little bit more prevalent than it was a year ago, but.
Again, we.
We've always we've always said that we like being.
We like the markets that we're playing in we know growth isn't a straight line.
But we think over the long term, we were positioned very well for us for to meet the needs of our customers.
Okay I'll pass it along thanks guys.
Thanks, Steve.
The next question comes from Mike.
Davidson. Please go ahead.
Good morning, and thanks for taking my questions.
Why don't I start off.
Yeah, Hey, guys.
So why isn't it up with a question on on FBS, maybe I wanted to hone in on two details of.
From your comments and outlook there.
I guess first is on the on the pricing.
Do you anticipate having a positive price year over year.
In 2023, and then secondly, I mean.
It feels to me like like F. B S was already behind on its replacement and growth schedule.
Before the pandemic, even started and of course, I only got more and more dire during the pandemic.
Itself and given what happened in 'twenty two I don't think we've caught up on wants to be so looking to put on the on the on the road.
Curious.
If this is not the strongest ear hearing in 'twenty three is it just because the fleets are kind of pushing out the inevitable and there will be all of these new.
You know trucks on the road eventually if not this year then called encore. Thanks.
Yeah, Mike.
You answered your question.
And I think we had it in the prepared remarks right we're still.
Like where we're at positioned well.
We just think it's the macroeconomic issues to your point.
We have not caught up on the vehicles, but I think it's just maybe I don't want say a pause, but there is a.
Slip out.
We still see the demands we see parcel packages moving in the right direction.
And I think it's just the being cautious on the macroeconomic issues that everyone's talking about.
Fedex GPS they all had their earnings out and we'll read knows and talking with them. So.
Unless something changes.
You're right, it's going to be pushed out a little bit, but it's still a great business to be in.
And I think Jonathan on price comment I think yeah, sorry go ahead.
Yeah on the first question please.
Yeah, just on price I mean, our expectation right now is we've taken.
Solid pricing over the last 18 months as inflation came through our expectations will be positive from a pricing standpoint in 'twenty three.
Okay great.
Moving onto the other other kinds of Evs.
We saw some announcements that there is going to be a new trend.
Sprint's are coming out at some point in 2023.
Class II actually nothing to do with the Blue our main products, there, but I'm curious whether you're ready for another uptick.
I will now come to your facilities do you have the designers and people in place to start bringing the sprinter going forward.
Yes, Mike I think you know like any.
E vehicle, we're always working with our customers whether it's in this case Mercedes whether it's.
The lantus right or forward.
We're working with all of them on packages.
Like the up fit business.
And if our customers, whether it's direct to them or through a fleet management company and we are prepared to build the vehicles and Uh huh.
Obviously rate quote those orders and try to win the business. So yes, we're oh like like the transit E transit and like the Bev out of Atlantis.
To us this is just another opportunity to gain some more up that business.
Okay got it.
Can you just maybe touch on some.
More detail on the guidance here John on the maybe the cadence.
<unk>.
Do you feel well supplies and chassis for the first quarter.
And I just met with some challenges in the first quarter on margins just so I'm just curious as to how things might play out.
We have started the year here would be appreciated.
Yes, I think as you know Q1 is typically a seasonally low for us just given some of the model year changes from the chassis supply perspective, we would expect.
Q1 is probably in the low to single mid single digit range from a margin perspective.
Before ramping up.
And mid year like we typically do so.
Obviously, we're not guiding quarters here, but it's probably something like 30% in the first half as you look at the full year guide.
Got it.
Hi, guys. Thanks, so much I appreciate the color.
Thanks, Thanks, Mike.
The next question comes from Matt Koranda of Roth.
Please go ahead.
Hey, guys.
So just want to make sure I understand.
The EBITDA bridge.
Better than the guidance from <unk>.
Versus last year, or so take the $71 million from 'twenty to roughly $15 million on wines from Blue arc stand, but then you've got 8 million of incremental spend from XL, the $78 million would be embedded in the guidance, excluding any benefit from the segment growth. So maybe 7 million.
Sort of segment the growth contribution.
Embedded in the guidance just curious is S V, adding to growth or is that a headwind just want to understand the moving pieces in the segments.
Underneath the overall guide.
I think as you look at the F B SD business sorry.
We do expect to see.
Positive growth in that business year over year anything you, obviously do have some motor home headwinds that we've talked about that need to be offset.
But the opportunities that we have from our service body and contract manufacturing perspective will offset those so probably growing at a slower pace operationally, but still growth year over year.
Okay, alright that makes sense.
And then just digging into the ECS backlog a bit more. So obviously you guys have talked about sort of a renaissance among fleet customers, maybe a little bit of caution around the macro but one thing that we found in speaking with some dealers is that chassis order books seemed like they're closed this year and so how much is the.
Implied order flow the weakness there is just given the fleet's can't really get chassis for the rest of this year in there.
This essentially be indicating.
For new vehicles kind of early to the middle of next year, if they're going to put an order and so that longer lead time, just throttles back their ordering behavior versus like macro rabbits, and so I'm. Just curious if you guys have any sense for that.
Okay.
Okay.
Yes, I mean I think.
I'm not sure.
Where specifically hearing the same thing I think as you look at.
Some of the class III vehicles I think.
As the Oems allocate those vehicles historically.
The commercial capacity has been absorbed pretty quickly.
And so there is certainly that aspect.
I'm not sure we're hearing anything.
I would agree with John Man I think is more in the class II because what we've heard is Florida is now allocated quarterly.
So that might be some of the the adjustment that people are trying to understand and make.
In the past they would let you.
Look for the whole year.
Another, forcing you to book quarterly.
So it has shortened up some of the view and the class III space.
But.
And with John we're not hearing any of that in the class III and above.
Okay, Alright, that's helpful.
The rest of mine have been asked and answered so thanks guys.
Alright. Thank you. Thank you.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Randy Wilson for any closing remarks.
I'd like to thank you for participating in today's conference call is Darryl and Jon mentioned in their prepared remarks, we look forward to hosting investors at the MTA work truck week, taking place in Minneapolis, Our March seven through nine.
In addition, we will be hosting one on one investor meetings and Fireside chats in March at the Raymond James Institutional Investor Conference on March six and the 35th annual Roth Capital Conference on March 13th and 14th.
We thank you for your interest in the ship group and with that operator. Please disconnect the call.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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