Q2 2023 The Shyft Group Inc Earnings Call
Okay.
Second quarter 2023 conference call and webcast.
Participants will be in a listen only mode until the question and answer session of the conference call.
Reminder, this call is being recorded.
Now I'd like to introduce Randy Wilson, Vice President Investor Relations in Treasury of the ships great. Mr. Welcome You May proceed.
Thank you for joining this morning's call I'm joined by Darryl Adams, President and Chief Executive Officer, and John Dwyer, Chief Financial Officer.
They're prepared remarks, we followed by a question and answer session.
For today's call. We've include our presentation deck, that's been filed with the F. C. C and is also available on our website.
Before we begin please turn to fight to 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.
Primary rest of that management believes can materially affect our results are identified in our forums 10-K and 10-Q.
<unk> with the F C C.
We will be discussing non-GAAP information and performance measures, which we believe are useful and evaluating the companies operating performance.
During today's call will provide a business update before moving onto a more detailed review of the results and are updated 20 twenty-three outlook.
We will then open the line for Q&A.
Please turn aside three and I'll turn it over to Darryl Adams.
Thank you Randy good morning, and thank you for joining us to review our second quarter of 2023 result.
Overall results in the quarter were in line with our expectations highlighted by strong performance, especially vehicles and robust cash generation made.
It made great progress on the execution of our long term strategic priorities delivering on key blue or electric vehicle milestones.
[noise] system with our private communications, we remain on track for Blue arc production in the second half of the year.
[noise] excuse me what fleet vehicles and services grew modestly in the quarter.
We experienced further weakness and and market conditions as well as operational efficiencies that impacted our overall performance.
Second quarter sales were down 3% year over year with strength in both our truck and service body product lines more than offset by softness and last mile delivery and motor home.
Quite the sales decline, we delivered 16 million of adjusted EBITDA up 16% versus last year.
My record margin performance and specialty vehicles.
Turning to our market commentary on slide four.
Longterm outlook remains favourable anarchy and markets, including last small delivery and infrastructure and we believe we are well positioned as an industry leader in these areas. However throughout the second quarter, we saw accelerate the signs of demand weakness due to broader economic condition and evolving market dynamics.
I will now provide additional details on what we are seen within our businesses, starting with fleet vehicles and services.
We previously discussed concerns and a level of uncertainty and the last my delivery market.
After speaking with our customers and listening to their public commentary. There are several factors influence influencing immediate buying decisions, including continued year over year decline and parcel package volume as well as specific customer and Amyx regarding fleet strategy. As a result, we have seen customers the burden cancel orders bleeding.
To hire dealer inventory levels and reduced OEM chassis production.
We experienced the impact of reduced gestures quite late in the second quarter and we now expect to see more significant reductions in chassis production levels in the second half of the year.
At the same time, we're also hearing from customers that there is an ongoing need for vehicles, which gives us confidence the long term prospects for last my delivery vehicles or orders have been deferred it is clear that fleet replacement needs e-commerce growth projections and regulatory requirements to reduce emissions will drive future.
Vehicle purchases.
In response to the current environment, we are taking decisions decisive actions within F. D S, including adjusting operations to efficiently support current volumes, while focusing on long term productivity drivers.
Driving improve product quality and on time customer deliveries and refocusing our sales efforts by expanding into new customers and locations.
Moving to a specialty vehicles are work drug products, including service bodies Zuzu contract manufacturing and police vehicle up it continue to perform well supported by increased infrastructure spending and demand for vocational vehicles. We expect these positive trends to continue and we are focused on executing our strategy.
To expand our products and geographies to support the growing needs of the market for example.
We recently launched a royal XP body and open our Nashville facility, which encompasses both service bodies and police vehicle outfit.
For a motor home Jesse business. The broader every industry has been challenged by general economic conditions. After multiple years of growth entering 2000 twenty-three we expected to see softening demand. However in the second quarter, we have seen the demand decline accelerate an army manufacturers have further reduce their production schedules in light of higher dealer inventory.
Right.
That said despite declines in the market, we continue to increase our market share and the greater than 400 horsepower diesel segment and we experience recent market share highs in the quarter.
Looking forward industry reports suggest that there will be a market improvement in 2024. However, we remain cautious about this album have adjusted our business Accordingly.
Overall, we are confident we have positioned the shift group in markets, where there long-term secular growth.
Including last my delivery infrastructure and electric vehicles.
Have demonstrated the ability to manage challenging market conditions like the ones. We are facing today and we have industry, leading brands flexible operations and a talented team that will enable us to win in the future.
Turning to slide five I'll provide an update on a blue arc E V progress and the key milestones we expect to achieve the second half of the year to have a successful product launch.
As a review our Blue arc operational plans, we consider these lessons learned from our decades of manufacturing experience.
Showing that blue arc vehicles are built with the quality and value for the best in class products in the market.
We are currently field testing our vehicle.
<unk> customer and the initial feedback is positive which gives us confidence in the vehicles capability.
We are excited by the vehicles test performance and the hot weather conditions as well as the feedback that we ever.
<unk> for multiple drivers they have delivered packages on their daily route.
In addition, our suppliers are actively working to finalize component testing and provided final certification ahead of startup production.
We're nearly we are nearing completion of the facility construction and are conducting operator training through virtual and slow bills at our Michigan campus. We are completed the standard operating procedures and are on track for the initial production of 50 units for delivery to customers in the fourth quarter.
We are committed to building a highly qualified blue art dealer network to insure fleet customers receive the products and services they expect.
Previously talked about a nationwide dealer in service network made up of a small group of dealers and an established service provider. We remain in the process of finalize agreements to support destruction well all.
Also stablish and banking relationships to ensure dealers can support the floor plan needs alright.
Our agents are being finalized dealers or how you engage with customers and there continues to be a high level of interest in our product.
We are incredibly excited about blue arcs prospects and our team is the ability to execute this product launch in the second half of the year with that I'll now turn it over to John to discuss our second quarter financial results.
Thank you Darren and good morning, everyone. Please turn to five seven and I'll provide an overview of our financial results for the second quarter of 2023.
Overall, we delivered second quarter results that were in line with our expectations with solid year over year adjusted EBITDA growth.
We continue to see pockets of strength across the company, particularly in our specialty vehicle segment.
Sales for the second quarter or $225.1 million down 3.1% from the year ago quarter.
Net income was $4.7 million or 13 cents per share compared to net income of $5.3 million or 15 cents per share in the previous year.
Second quarter net income was negatively impacted by approximately $3 million of expenses related to our CEO transition as well as actions taken to adjust our cost structure given the lower volumes.
And the second quarter, adjusted EBITDA was $15.9 million or seven per cent of sales up from $13.7 million or 5.9% of sales in the second quarter of 2022.
These results include E V program spend of $7.4 million up slightly from the prior year.
Excluding these expenses adjusted EBITDA was 10.4% of sales up 140 basis points year over year.
Adjusted net income improved to $8.7 million compared to $7.5 million in the year ago quarter, well adjusted EPS Rose to 25 cents per share from 21 cents per share last year.
Oh now walk you through our second quarter results by operating segment, beginning with fleet vehicles and services on Friday.
And a quarter of the F. T. S team delivered solid working capital reduction and meaningful year over year improvements in truck body output will taking short term and structural cost actions in a highly dynamic environment.
F D S achieve sales of $139 million up 1.5% compared to $136.9 million a year ago with sales growth from truck body, an aftermarket more than offsetting declines in our last mile delivery products.
Brooke body sales in the quarter included $7.5 million a chassis pass through revenue.
Adjusted EBITDA for the quarter was 12, and a half million dollars versus 14, and a half million dollars a year ago.
Adjusted EBITDA margin was nine per cent of sales compared to 10.6% in the second quarter last year.
As we transition to the second half of the year.
<unk> team remains focused on adjusting production to support softer near term last mile demand, while driving operational improvements to address ongoing margin challenges.
Please turn to slide nine for the specialty vehicle second quarter results.
We are pleased with our SB results of the business delivered strong year over year profitability growth and record margin performance.
The team also achieved a significant milestone with a sue.
Now delivered more than 100000 and series trucks through our partnership over the last 12 years.
Overall second quarter sales were $87.6 million and 8.1% decrease from $95.3 million in the prior year driven by motor home volume declined.
Adjusted EBITDA was $17.4 million or 19.8% of sales compared to $12.9 million or 13.5 per cent of sales in the same period last year.
As we close out the S. B comments, we would like to recognize the addition of Jacob primer to the shift group as president of our specialty vehicle segment.
Jacob is a proven operations leader with broad industry experience and we look forward to benefiting from his contributions.
So are you starting to slide 10 for 2023 outlook.
Entering the year, we were cautious regarding our outlook as there was uncertainty across our key market driven by broader economic challenges.
As a result, we responsibly monitored and managed our cost structure to align with expected demand, while continuing to deliver for our customers and focusing on generating cash flow.
By the end of June total headcount was down approximately 25% versus the start of the year and the team was able to drive a solid working capital reduction.
Whoever is.
As we progress through the second quarter or prior concern surrounding a challenging demand environment materialized and conditions further deteriorated for last mile delivery vehicles and motor home chassis.
We saw last mile delivery orders cancelled and purchases differed ultimately leading to lower second half OEM chassis production.
All these factors significantly impacted our volume expectations for the year.
Given these factors are updated outlook for the full year 2023, notwithstanding further changes in the operating environment is as follows.
Sales to be in the range of $850 million to $950 million compared to the previous outlook of $1 billion to $1.2 billion.
But justin EBITDA of $40 million to $60 million compared to the previous outlook of 70 to 100 million.
Blue arc production remains on track and we currently estimate 50 units to be produced and delivered in 2023 as we take a disciplined approach to our initial production.
We also expect to dry positive incremental castle in the year as we continue to drive down working capital.
We will continue to responsibly monitor and manage the business in the second half, while protecting our blue arc product launch and maintaining a focus on longterm growth.
Please turn to the capital allocation update onsite 11.
Our balance sheet continues to be a strength and differentiator for the company and despite a challenging environment, we were able to improve our financial position in the quarter.
For the second quarter, we generate a $29.7 million in operating cash flow, reflecting significant improvement over the prior year as we completed and reduced working process vehicles.
Companies capital structure remains strong with a net leverage ratio of approximately 0.6 times and a 400 million dollar revived revolver, which provides a strong access to capital.
We're finding organic growth opportunities, including the investment and blew our T V and $6.5 million in capital expenditures.
Before turning it back to Darryl I Wanna take a minute to reiterate the financial strength of the company.
Time shift has proven to be a successful cashflow generator.
And the last 18 months, we have deployed $125 million, a capital, including $75 million into organic growth investments that will accelerate growth in the coming years, the largest being blue arc.
In addition, we have returned nearly $50 million to shareholders through dividends and share repurchase during share repurchases during that period.
We expect to drive additional second half cash flow and maintain our financial strength as we close out the year.
We're also confident that blue article generate positive cash flow in the coming years and provide solid returns on our investment.
Overall, we have strong liquidity and are confident in our growth story, giving us the financial flexibility to efficiently deploy capital and maximize shareholder value.
With that I'll turn the call back to Darrell for closing remarks.
John Please starting to slide 12.
At your shift group, we have created a compelling industrial growth company and will remain nimble in response to changing market conditions.
Maintain a long term strategic focus with a financial strength investment and innovation and focused on second growth markets. We a physician a company to be a leader and drive shareholder value over the long term.
Before I conclude like two of knowledge. The recent announcement of my transition and personally thank the investment community for their support and interest in the ship group.
Look forward to continuing to lead the company until my successor is in place. Thank you and with that operator, we're not ready for the Q&A portion of the call.
We will now begin the question and answer session will ask a question you may price than one on your Touchtone phone.
Using a speaker phone please pick up your handset before pressing a keith.
Jonathan that question can you. Please sorry, then too.
The first question is from Gregory C T I T Callahan.
Thank you and good morning, everybody and thanks for thanks for taking my questions.
Yeah, I <unk> I was hoping to dig a little bit more into the to the updated guidance. Just you know, it's it's kind of it's.
Kind of we look at the the updated revenue.
The step down on the revenue.
And then I realized you were talking about that and some of the prepared remarks, but could you talk a little bit about that that step down in terms of is that primarily deferrals <unk> <unk> was it were there any cancellations.
And just as as in any kind of color around you know the the types of customers and where that kind of.
In which businesses that was kind of beans stepped down.
Okay sure I can <unk> born and Greg This is John May.
I think when when you look at it and we touched on this and and some of the prepared remarks I think we saw both.
Both of <unk> cancellation from an order perspective I think.
Look at the mid point and we went from about $1.1 billion down down to the 900, So 200 million I would say, it's predominantly within the F. B S business. There is a portion that is motor home just given the overall dynamics there.
But when you look at F. B S. We've we've.
You know talked about there they're being some noise in the system I'm dealer inventories historically.
It seems to have materialized as we discussed and and really what we're seeing is is in response to that chassis production reduce and so you know as we've had.
Sort of an elevated backlog over the last couple of quarters, we've seen some cancellations given they haven't been able to match that from a chassis perspective, and so that's really impacted the outlook in the second half of the year I think some of the dynamics that Darryl talked about you know he talked about specific customer dynamics uhm.
There are there are some you know every customer sort of has their own.
Sort of actions at this point, but you know, we're seeing sort of reorganizations internally, we've talked about cost actions in capex restrictions historically with these are recently with these customers as well and so there's a bit of a pause as the environment suttles in package volumes continue to be down and we expect that to continue through at least the end of the year.
<unk>, alright, and potentially even into early next year and so you know again, we've taken sort of a cautious view of what that looks like but the biggest drivers had been in the F. T S business.
Okay, great. Thank you for that and then and then you know and and you also did allude to some of the you know.
I don't know for sure.
The the cost cutting and kind of the right side of the business you know and realizing that.
This is really only been going on for for a brief period of time with some of the commentary from your customers Buddies as we stand here in July or a we kind of where we need to be or could we see some other.
Moves to kind of protect margins you know just to your comment jot about.
The lack of visibility may be all the way out into early.
Next year.
Yeah, I mean, I think the team.
You know I think as we as we entered the year. We did have a cautious view. So it's not like we've taken immediate cost actions. Following some of the late quarter news that we've had we've been sort of managing the cost structure of the business throughout the first half of the year and so I think that's beneficial for US you know will.
<unk> to be flexible from a manufacturing perspective, as we always have been where right now we're looking at.
Different ways to leverage the capacity that we have in and potentially shifts in production and <unk> and and products around.
To ensure that we're meeting customer expectations getting the appropriate output and so we will continue to do those things as well as to the extent that you know there there are times, where there's no volume we will certainly flex from an hourly perspective, but we feel like we've gone ahead. It is.
Not to say that that we won't continue to to look at monitor and look at this going forward, but you know we feel like we were a bit ahead of it.
Mmk good good to hear I. Thank thank you for taking my questions that have a good rest of the day.
Thanks, Thanks directly through.
The next question is from my actually ski at Davidson. Please go ahead.
Yes, hi, good morning, and thanks for taking my questions.
But we can tell.
You can talk to me about any commerce world.
<unk> wide thing or is it maybe just one or possibly two customers that are causing that right now.
I missed the first part of your question, but I think the you know as you look at each I mean, there's only a handful of large parcel customers that are out there I would say there's there's specific.
Dynamics week with each of them, but I think the themes are consistent across I mean, it did certainly elevated dealer inventories I think Pat you know if you look at any of the parcel companies right now the reporting year over year package declined.
Alright, and and certainly specific reorganizations and those types of things are are attributable to talk to.
To to one company, but I think all of that sort of adds up to a point of pause from a purchases perspective, and that's really what we're seeing from out in the environment I think they're all made the comment early in his remarks.
We continue to have positive discussions with our customers right to continue to tell us that there's a need for vehicles. Its just balancing sort of capex expectations in the short term with how they're managing their fleets over the longterm and so we expect you know those from a demand perspective, we expect that to come together at some point, but it's probably pushed out a little bit and.
Could there be some activity later in the air potentially but we think that.
We want to be somewhat cautious here over the next couple of quarters.
Okay. Thanks for that.
Can you comment on the Snead age for someone you love you find on our customers are they still go out to outside a third party.
[noise] providers to ensure they have just enough trust to just meet every day demand.
Demand or is that you needed caught up to.
<unk> levels.
Yeah like this is Darryl I'm not sure. We can give you an exact number fleet H, but to your question about the the white trucks, you know I think we've mentioned in previous calls we have.
Parcel delivery company depot right next door office here closer office.
They had a lot of those white trucks and now those white trucks are are now gone. So I think to John's point in my commentary right the package volumes going down post COVID-19.
And those vans were needed because they couldn't get the vehicles. They got their vehicles those answered gone. So it's it's it's a dynamic environment [noise] I'm trying to figure out exactly what's the right formula the customers are trying to figure that out and we're right with them having conversation so to the point is that's gonna keep coming.
The point is the the fleet age and the replacement cycle and what we're making sure does that R. F. B S Division is ready to take on those orders influx back up once.
The volume comes and that's what we're doing right now right any good manufacturing company will take this opportunity and put some different process is in place to make sure. When it comes back that's already be more efficient at a time, that's what we're doing.
Okay great.
One last one.
Did you 2024, I'll look for Blue are still appear to be in line I guess, but lately.
Kind of <unk>, you have mentioned that it shouldn't run right you hit in 2025 into the work does that also appeared to still be in line just a little more detail people who've been testing the vehicles, what they've been saying special will be really appreciate it.
Yeah, I think they're all they're all made the comments in a D V update I think the feed you know we've been in field testing now the vehicle has performed very well the customer feedback.
From the broader team as well as the drivers has been fantastic.
And so we're really pleased with the progress that we've made there and will continue to X could execute those you know those types of field test and demos with customers going forward I think as you look at where we are from a production standpoint.
Our expectation is that will have capacity for.
Up to 1500, as we get into next year, which will continue to ramp as we get into 2025, and so you know certainly we'll see an acceleration of of of production and deliveries delivery expectations as we move forward.
Okay I'll leave it there thanks for this transaction.
Thanks, Mike things like.
The next question is from that Koranda, a rock and can I. Please go ahead.
Hey, guys applying very burnt on from that.
<unk>.
As it relates to the guidance, we talked about revenue already and how much is coming out of US yeah. So that should be uhm, maybe just moving over to adjusted EBITDA.
About 35 million at the midpoint dispute.
Speak to you how much it's coming from I V S and S. B is it a similar dynamic and then just put a recliner team too actions that were taken this year to cut costs.
Yeah I think.
I think as you look at it I think it's it's more heavily weighted towards the F. T S business, but primarily related to the volume decline as.
As we've talked about.
When you when you look at some of the cost actions that we've taken we talked about 25, roughly a 25 per cent reduction in head count through the first half of the year, which will continue to flex and adjust as necessary to manage the second half. We've also been managing discretionary.
Programs I think you know.
Key for us is to protect the blue arc investment as.
We are confident in what that will return here in the future and so we've been able to to to manage other investments.
You know from whether it's an I T marketing you know go through the functions and so those are the two biggest pieces.
And will continue to look at at other items as we get into the second half of the year, but those are the key actions there hasn't necessarily been any.
You know facility consolidation or anything like that I think is.
Once the additional thing that we are doing is looking to leverage the the facility and footprint capacity that we have by transferring products, which I talked about earlier as well.
Okay makes sense. So then I guess spiraling off that how should we think about the cadence of EBITDA margins in the back half of the year for both at the S. M. S. T D S. The emergency come down a bit from your D. O B S margins improve at all just a little bit more color you here.
Would be helpful.
Yeah, I mean, I would expect yeah do you think about sort of the quarterly profile I would expect a second have to adhere to be relatively balanced.
I think when you look at it from a margin perspective that you probably see a step down an S. B off their record highs in the quarter and I would say F. D S. As.
<unk> continues to operate where they are with some of the volume pressures that we have in the second half of the year offset by productivity actions that we're looking to drive.
Okay. That's helpful.
Maybe just one more from me on the backlog.
Any line of sight to when demand and proves I know, we kind of talked about a little bit.
Dependent on package volume's, but mmm do we expect more cancellations in the next few quarters or do you think we've seen the worst cancellations.
Two Q.
I think from <unk> I think from a cancellation perspective.
We're probably past.
The.
Probably troughed here in the second quarter I think when you look at when the demand comes back I think there's a couple of variables one being dealer inventory I think there needs to be some comfort in what longer and what package volume does or we need to see that start to turn as well, which may happen here in the second half of the year I think.
Point back to to.
<unk> comments that we continue to have good discussions with customers about the need need for vehicles and so there's a bit of a pause or is it or a timing shift here that's impacting the second half of the year, but the longterm continues to be the the outlook continues to be very solid from our perspective and so he will continue to manage the <unk>.
Business through the second half and.
And do that and an efficient manner.
And be ready to return to production when it comes back.
Got it makes sense, that's awesome you guys. Thanks.
Thank you.
The next question is <unk>.
<unk>. Please go ahead.
Hey, good morning, everybody.
Alright.
Hey, I was wondering if you have a rough number for us or rough bogey on on what percentage of the F. B S backlog today, it's not tied to parcel customers.
I would say.
I would say that it is is.
Probably more balanced than what it has been in the last couple of quarters I don't have a precise number for you. We can certainly look into that but we've seen sort of a shift, particularly with the growth in the truck body sort of that mid mile business shift.
Way from parcel.
So I'd take more balanced than what it has been historically.
Okay. Okay.
And then I'll I'll want to struggle back to Blue arc I'm kind of wondering two things, but but number one you know what sort of the next milestones that investors should be looking out for whether that's you know dealer partnerships you know hard orders more testing with customers. Just maybe if you could help us understand those dynamics better and then the 15th.
Vehicles and four Q, you know I I think I think when he did the E V day that number was a little bit higher can you maybe talk about what's driving that difference.
Yeah sure if <unk>.
I think the next milestones you're gonna see you would probably be some dealer agreements and then the service provider agreement.
And then.
No no.
I'm not sure if we'll have a press release when we rule out the first vehicle or not but then it'd be getting those vehicle off the end of the line. After we complete the training of the operators and original still builds.
[noise]. So on the you know the number was higher and I think we talked about it in the past I don't remember exactly what form but one of the the break suppliers that we initially went with head.
Wasn't gonna have a component so we needed to go to the current break supply or in their testing was a little bit longer they did both winter and summer. The other one was only doing one.
Ah battery of testing, so that pushed it out a little bit and their certification. So they once they get done with a break testing they need to certify it internally and that's the process. There now so what we don't want to do is get the vehicles out there without having that.
All the certifications, we need to make sure. It's a safe vehicle uhm. So that was the main Duane and there was a little bit of some battery testing that went on but that's all behind US now so it's.
We just want to make sure the vehicle safe and ready to go for the customer and we're not going to jeopardize any of that.
Okay. So you don't think it's a demand driven thing.
No.
Okay I appreciate that and then just my last one.
I was just curious if we could John maybe compare F. B S margins you know today implied for 2023 verses levels that you all data in 2019 and 2020.
Seemingly a similar revenue base.
But you know I understand overall in the corporate P&L, there's heightened r&d's associated with Blue arc, which he can you maybe talk about some of the some of the margin differentials an F. B S and how we should think about maybe the back half of the yearning to 24 in the context of what you guys used to do.
Yeah, I mean, I think as I mentioned I think the second half of the year it looks pretty close to what the second quarter looked like from an F. D. F standpoint, when you look at I mean, we.
Certainly when when.
Volumes were up and parcel delivery vehicles were.
<unk>, Hi, we delivered significantly higher margins and where we are today I think as you look at that shifted the business more towards the truck body versus parcel I think there's there's a bit of a mix aspect from that perspective, but I think it's also important to note that we continue there are inefficiencies that we continue to to get after him.
Experience and I think.
If you look at it.
Part of that is just volume related and the absorption on some of the capacity, which.
Mentioned, we're looking to to fill to offset some of that.
But some of that material issues that have plagued us for over a year as we go back and rework some of those vehicles. It's created a more cost inefficiencies and I've been a challenge from that perspective, as well and so there's there's still a couple of points of margin headwinds that we have from just an operational perspective that we the team is working to get us through.
<unk> as we get into later in the year and into 2024.
And so I would expect margin expansion as we move forward, but I think the.
We'll continue to to manage it through the second half of the year with with some further volume challenges and the the leverage that that creates leverage issues that creates upset by some of the productivity improvements.
That we expect.
Got it I I appreciate the time this morning.
Thanksgiving.
The next question is from Ryan <unk> of Craig Hallum Capital Great. Please go ahead.
Good morning, Ryan on for Steve <unk>.
Curious <unk>.
<unk> sure you guys commented on S U V and the high horsepower chassis, but an F. B I assure you guys <unk> dynamics there were there sure shift moving around given the current dynamics.
Alright ran this is Darryl no it's F.
F B S. As one of the harder ones cause there isn't really any good data, it's all self reporting.
And I think I've mentioned multiple times in the past right. It it depends on your <unk> your orders, but on average it's it's we don't see any deterioration is.
Two suppliers, it's Austin Morgan so it would be you know maybe this year they get a different order from one customer and that we had last year. So it does move around but overall not seen into your deterioration. It's a it's a wide market.
Challenge, that's going on right now with the <unk> parcel delivery.
Uhm volumes going down and I think you read that in all of the possibility company commentary that I mentioned during my.
Part of the of the call and I think I'd, just add to that right and I think if.
You know as you look at the OEM chassis manufacturer reaction of of cutting cutting production for the second half of the year I think that points to it being more of a an industry challenge than a specific company or market share issue.
And then secondly, any price changes I guess, where your customers are trying to press for a price reductions within the backlog or in future negotiations, which is causing them to kind of pause and causes feel made here.
Nothing I would say that's impacting moving forward from Ah ordering perspective, certainly a more challenging pricing environment and when were we sat 12 12 months ago, but not nothing specific to point out from that perspective.
Last one for me just remind me dealer inventory versus direct business kind of a mix of how much is in each and then how long do you think it'll take to normalize the dealer channel inventory.
Yeah, <unk> I mean every <unk> point, our business is a little bit lumpy from a customer perspective, but you know it's relatively balance between direct I'll call. It directing dealer on the S. Yes out of the business, sometimes it until tilted one way or the other.
You know, we we would expect to see some of that clear through.
As we get into next year I think we want we don't want to get ahead of ourselves and assume that is just going to turn it round here in the second half of the year and so we expect.
Expect it to be a softer environment here through at least the next three quarters three or four quarters, maybe even through mid next year. So we'll continue to monitor that again I'd point back to the.
The conversations were having with customers is that they need vehicles and so at some point that's gonna that's gonna break and and we will see an increase demand I think we're just in a period of puss.
Thanks, guys I appreciate it.
Thank you I can try and French fries.
This concludes our question and answer session I would like to turn the conference back over to Randy last name for closing remark.
Thank you I'd like to thank all investors for participating in today's conference call. We look forward to hosting investors in September at the R. B C Global <unk> conference in Las Vegas, The Raymond James Vehicle Technology day held virtually and the D. A Davidson 22nd annual diversified industrial and service conference in Nashville, We <unk>.
Thank you for your interest and ship group with that operator, please disconnect the call.