Q2 2024 The Shyft Group Inc Earnings Call
Good morning and welcome to the Shyft Group's second quarter 2024 conference call and webcast.
Operator: 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. I would like now to introduce Randy Wilson, Vice President of Investor Relations and Treasury for the Shyft Group. Please go ahead.
Randy Wilson: 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. I would like now to introduce Randy Wilson, Vice President of Investor Relations and Treasury for the Shyft Group. Please go ahead.
Randy Wilson: Good morning, and thank you for joining us. Today you'll hear from John Dunn, President and Chief Executive Officer, and John Douyard, Chief Financial Officer. Their prepared remarks will be followed by a question and answer session. But before we begin, 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.
Speaker Change: Good morning, and thank you for joining us. Today, you'll hear from John Dunn, President and Chief Executive Officer, and John Douyard, Chief Financial Officer. Their prepared remarks will be followed by a question and answer session.
Speaker Change: Before we begin, please turn to slide 2 of the presentation for our Safe Harbor Statement.
Randy Wilson: 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.
Speaker Change: Primary risks that management believes can materially affect our results are identified in our Forms 10-K and 10-Q filed with the SEC. We will be discussing non-GAAP information and performance measures which we believe are useful in evaluating a company's operating performance.
Speaker Change: Reconciliations for these non-GAAP measures can be found in the conference call materials. We'll begin with a business overview from our CEO , John Dunn, followed by John Douyard's review of his second quarter performance and our 2024 outlook. We'll then open the line for Q&A.
Randy Wilson: Primary risks that management believes can materially affect our results are identified in our Forms 10-K and 10-Q filed with the SEC. Additionally, we will be discussing non-GAAP information and performance measures, which we believe are useful in evaluating a company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. We'll begin with a business overview from our CEO, John Dunn, followed by John Douyard's review of second quarter performance and our 2024 outlook. We'll then open the line for Q&A. Please turn to slide three, and I'll turn it over to John Dunn, who will begin today's prepared remarks.
John A. Dunn: Thank you, Randy, and good morning. I would like to welcome everyone as we discuss our second quarter performance, as well as the exciting strategic announcement we made this morning regarding the acquisition of independent truck upfitters, a unique business that aligns well with our growth strategy for the quarter. We were pleased with our performance given the environment, as we saw benefits from our focus on operational efficiency. Overall, we delivered $12.5 million of adjusted EBITDA, with significant improvement in our FES business, with margin increasing to high single digits in the quarter.
Speaker Change: Please turn to slide three, and I'll turn it over to John Dunn, who will begin today's prepared remarks.
John A. Dunn: Thank you Randy and good morning. I would like to welcome everyone as we discuss our second quarter performance.
John A. Dunn: as well as the exciting strategic announcement we made this morning.
John A. Dunn: regarding the acquisition of Independent Truck Upfitters, a unique business that aligns well with our growth strategy.
Speaker Change: For the quarter, we were pleased with our performance given the environment, as we saw benefits from our focus on operational efficiency.
John A. Dunn: Overall, we delivered 12.5 million dollars of adjusted EBITDA with significant improvement in our FES business with margin increasing to high single digits in the quarter.
John A. Dunn: We have made organizational changes at the corporate office, as well as in the businesses as we continue to drive efficiency across the company. We announced earlier in the quarter that FedEx, a longtime partner for 150 BlueArk trucks, the BlueArk team also achieved key project milestones. As we transition to production, we will deliver trucks to customers by the end of the year.
John A. Dunn: We have made organizational changes at the corporate office.
John A. Dunn: as well as in the businesses as we continue to drive efficiency across the company.
John A. Dunn: We announced earlier in the quarter, in order from FedEx, a long-time partner for 150 BlueArk trucks. The BlueArk team also achieved key project milestones.
John A. Dunn: As we transition to production.
John A. Dunn: and we will deliver trucks to customers by the end of the year.
John A. Dunn: Overall, I want to emphasize that Shyft team members are acting with urgency to drive improved results with a focus on commercial activity, profitability, and cash flow. Please turn to slide four, and I will expand on our progress. Back in February, I introduced an operating framework to drive sustainable financial growth. This framework is anchored by the following pillars. High-performing team. Operational Excellence, Customer Centricity, and Financial Growth. We continue to make progress across all pillars.
Speaker Change: Overall, I want to emphasize that Shyft team members are acting with urgency to drive improved results with focus on commercial activity, profitability, and cash flow.
Speaker Change: Please turn to slide 4 and I will expand on our progress.
Speaker Change: Back in February , I introduced an operating framework to drive sustainable financial growth. This framework is anchored by the following pillars, high-performing teams, operational excellence, customer centricity, and financial growth.
John A. Dunn: We saw operational benefits in both margin performance and the quality scoring that we have recently received from our customers, which positions us well for additional business in the future. We have also increased customer engagement. When I meet with customers, I consistently hear that they appreciate our partnership and are supportive of exploring additional opportunities where we can provide value and ultimately grow Shyft's share of the business.
Speaker Change: We continue to make progress across all pillars.
Speaker Change: We saw operational benefits in both margin performance and the quality scoring that we have recently received from our customers, which position us well for additional business in the future.
Unknown Executive: We have also increased customer engagement. When I meet with customers, I consistently hear that they appreciate our partnership and are supportive of exploring additional opportunities where we can provide value and ultimately grow shifts share of the business.
Speaker Change: We have also increased customer engagement.
Speaker Change: When I meet with customers, I consistently hear that they appreciate our partnership and are supportive of exploring additional opportunities where we can provide value
Unknown Executive: With that said, today I want to go into more detail and share recent progress on the team and growth actions. Overall, our high performing teams are collaborating, holding each other accountable, and working efficiently to deliver for our customers.
Speaker Change: and ultimately grow SHIFT's share of the business.
John A. Dunn: Today, I want to go into more detail and share recent progress on the team and growth actions. Overall, our high-performance teams are collaborating, holding each other accountable, and working efficiently to deliver for our customers. In the quarter, we were proud to launch our safety initiative, Mission Zero. Team member safety is not new here at Shyft, but we have made great strides over the past couple of years. A safe work environment is fundamental to ensure that we are a great place to work. Our safety mission is straightforward. Zero incidents have occurred.
Speaker Change: With that said...
Speaker Change: Today, I want to go into more detail and share recent progress on the team and growth actions.
Speaker Change: Overall, our high-performing teams are collaborating, holding each other accountable, and working efficiently to deliver for our customers.
Unknown Executive: In the quarter, we were proud to launch our Safety Initiative Mission Zero. Keep members' safety is not new here at Shift, but we have made great strides over the past couple of years. A safe work environment is fundamental to ensure that we are a great place to work. Our safety mission is straightforward. Zero incidents, zero injuries, every job, every day.
Speaker Change: In the quarter, we were proud to launch our safety initiative, Mission Zero.
Speaker Change: Team member safety is not new here at Shyft, but we have made great strides over the past couple of years.
Speaker Change: A safe work environment is fundamental to ensure that we are a great place to work.
John A. Dunn: Zero injuries, every job, every day. In addition, we have made great strides in streamlining our leadership structure, empowering our teams, and recruiting top talent. We consolidated leadership roles at the corporate office and in the FDS and SV businesses, while also flexing our operations to reflect the current environment. We will continue to focus on efficiency and flexibility in these areas moving forward, turning to financial growth.
Speaker Change: Our safety mission is straightforward.
Speaker Change: Zero incidents.
Unknown Executive: In addition, we have made great strides in streamlining our leadership structure, empowering our teams, and recruiting top talent. We consolidated leadership roles at the corporate office and in the FDS and FV businesses, while also flexing our operations to reflect the current environment. We will continue to focus on efficiency and flexibility in these areas moving forward.
Speaker Change: Zero injuries, every job, every day.
Speaker Change: In addition, we have made great strides in streamlining our leadership structure, empowering our teams, and recruiting top talent.
Speaker Change: We consolidated leadership roles at the corporate office.
Speaker Change: and in the FDS and SV businesses, while also flexing our operations to reflect the current environment.
Speaker Change: We will continue to focus on efficiency and flexibility in these areas moving forward.
Unknown Executive: Turning to financial growth, a thrill to discuss the acquisition of independent truck operators, or ITU, which we announced this morning, and will significantly enhance our service body update capabilities. We have consistently discussed how well our specialty vehicles service body business has performed, as we've executed our strategy to become a national market leader. This acquisition closely aligns with that strategy, and I will provide additional details on strategic fit and the transaction on slide five. With the ITU acquisition, Shift adds three locations, a strong management team, and it enhances our updating capabilities as they specialize in larger vehicles and more complex service body updating than Shift has historically.
John A. Dunn: I'm thrilled to discuss the acquisition of Independent Truck Upfitters, or ITU, which we announced this morning, and will significantly enhance our service body upfit capability. We have consistently discussed how well our specialty vehicles service body business has performed as we've executed our strategy to become a national market leader. This acquisition closely aligns with that strategy, and I will provide additional details on strategic fit and the transaction on slide five. With the ITU acquisition, Shyft adds three more locations.
Speaker Change: Turning to financial growth.
Speaker Change: I'm thrilled to discuss the acquisition of Independent Truck Upfitters, or ITU, which we announced this morning, and will significantly enhance our service body upfit capabilities.
Speaker Change: We have consistently discussed how well our specialty vehicles service body business has performed as we've executed our strategy to become a national market leader.
Speaker Change: This acquisition closely aligns with that strategy and I will provide additional details on strategic fit and the transaction on slide 5.
Speaker Change: With the ITU acquisition, Shyft adds three locations.
John A. Dunn: A strong management team, and it enhances our updating capabilities as they specialize in larger vehicles and more complex service body updating than Shyft has historically. The acquisition provides unique cross-selling opportunities for us where we can sell our Royal, Duramag, and Utilamaster products through ITU, while also leveraging their upfitting capabilities and commercial relationships across Shyft. Overall, the combination of Shyft and ITU is powerful and well-al
Speaker Change: A strong management team and it enhances our updating capabilities as they specialize in larger vehicles and more complex service body updating than Shyft has historically.
Unknown Executive: The acquisition provides unique cross-selling opportunities for us, but we can sell our Royal, Thermag, and Utility Master products through ITU, while also leveraging their up-fitting capabilities and commercial relationships across shift. Overall, the combination of Shift and ITU is powerful and well aligned strategically. From a financial perspective, we do this as an attractive combination, meeting key return thresholds while maintaining balance sheet flexibility as we move forward. We are confident this transaction is an excellent strategic and financial opportunity for Shift, one that we believe will drive value creation as we continue to grow our infrastructure related business.
Speaker Change: The acquisition provides unique cross-selling opportunities for us where we can sell our Royal, Duramag, and Utilamaster products through ITU, while also leveraging their upfitting capabilities and commercial relationships across Shyft.
Speaker Change: Overall, the combination of Shyft and ITU is powerful and well-aligned strategically.
John A. Dunn: From a financial perspective, we view this as an attractive combination, meeting key return thresholds while maintaining balance sheet flexibility as we move forward. We are confident this transaction is an excellent strategic and financial opportunity for Shyft, one that we believe will drive value creation as we continue to grow our infrastructure business. We look forward to working with the ITU team to integrate the business and deliver significant benefits for customers, team members, and shareholders.
Speaker Change: From a financial perspective, we view this as an attractive combination, meeting key return thresholds while maintaining balance sheet flexibility as we move forward.
Speaker Change: We are confident this transaction is an excellent strategic and financial opportunity for Shyft, one that we believe will drive value creation as we continue to grow our infrastructure-related business.
Unknown Executive: We look forward to working with the ITU team to integrate the business and deliver significant benefits for customers, team members, and shareholders. Now let's turn to slide six, and I will provide an update around the status of the blue arc program. We have made great progress since launching blue arc back in 2021, and I'm happy to say sitting here today we are in an inflection point in the program. We are in the cusp of starting commercial vehicle production, and our focus is ensuring that we only put high quality vehicles on the road. As we ramp, we have rigorous processes to support a well-disciplined vehicle launch.
Speaker Change: We look forward to working with the ITU team to integrate the business and deliver significant benefits for customers, team members, and shareholders.
John A. Dunn: Now let's turn to slide six, and I will provide an update on the status of the Blue Arc program. We have made great progress since launching BlueArk back in 2021, and I'm happy to say, sitting here today, we are at an inflection point in the program.
Speaker Change: Now let's turn to slide 6 and I will provide an update around the status of the Blue Arc program.
Speaker Change: We have made great progress since launching BlueArk back in 2021.
Speaker Change: And I'm happy to say, sitting here today, we are at an inflection point in the program.
John A. Dunn: We are on the cusp of starting commercial vehicle production, and our focus is ensuring that we only put high-quality vehicles on the road. As we ramp up, we have rigorous processes to support a well-disciplined vehicle launch. As we approach the delivery of our first vehicles, we are seeing increased customer interest. We're excited to announce the FedEx order earlier in the quarter. We appreciate their partnership through the development process. We have recently completed additional demos, providing end users the opportunity to experience the performance and quality of the Blue Art Vehicle.
Speaker Change: We are on the cusp of starting commercial vehicle production and our focus is ensuring that we only put high quality vehicles on the road.
Speaker Change: As we ramp, we have rigorous processes to support a well-disciplined vehicle launch.
Unknown Executive: As we approach the delivery of our first vehicles, we are seeing increased customer interest. We're excited to announce the FedEx order earlier in the quarter, and we appreciate their partnership through the development process. We have recently completed additional demos, providing end-uniters the opportunity to experience the performance and quality of the blue arc vehicle. Our former feedback continues to give us confidence that we have the right vehicle for the market's needs.
Speaker Change: As we approach the delivery of our first vehicles, we are seeing increased customer interest.
Speaker Change: We're excited to announce the FedEx order earlier in the quarter. We appreciate their partnership through the development process.
Speaker Change: We have recently completed additional demos, providing end users the opportunity to experience the performance and quality of the Blue Arc vehicle.
John A. Dunn: Customer feedback continues to give us confidence that we have the right vehicle for the market's needs. Turning to product development, Testing and validation of the vehicle are now successfully completed. We recently celebrated the first production pilot vehicle built on our Charlotte, Michigan production line, a key milestone that validated our production and quality processes. We are pleased to report that the battery performance from our supplier continues to perform at our expectations. Overall, we're confident vehicle deliveries will begin later this year with a ramp-up in 2025.
Speaker Change: Customer feedback continues to give us confidence that we have the right vehicle for the market's needs.
Unknown Executive: Turning to product development, testing invalidation of the vehicle is now successfully completed. We recently celebrated the first production pilot vehicle built on our Sharlab Michigan production line, a key milestone that validated our production and quality processes. We are pleased to report that the battery performance from our supplier continues to perform at our expectations. Overall, we're confident vehicle deliveries will begin later this year, with a ramp up in 2025.
Speaker Change: Turning to product development.
Speaker Change: Testing and validation of the vehicle is now successfully completed.
Speaker Change: We recently celebrated the first production pilot vehicle built on our Charlotte, Michigan production line, a key milestone that validated our production and quality processes.
Speaker Change: Transcribed by https://otter.ai
Speaker Change: We are pleased to report that the battery performance from our supplier continues to perform at our expectations.
Speaker Change: Overall, we're confident vehicle deliveries will begin later this year with a ramp up in 2025.
John A. Dunn: I am pleased by the incredible progress our team has made, and I look forward to providing further updates in the coming months. I will now turn it over to John for a detailed review of our financial results for 2024.
Unknown Executive: I am pleased by the incredible progress our team has made, and I look forward to providing further updates in the coming months.
Speaker Change: I am pleased by the incredible progress our team has made, and I look forward to providing further updates in the coming months.
John Dunn: I will now turn it over to John for a detailed review of our financial results in 2024 outlook.
Speaker Change: I will now turn it over to John for a detailed review of our financial results in 2024 Outlook.
Unknown Executive: Thanks, John.
Jonathan C. Douyard: Thanks, John. Please turn to slide 8. Overall, our team delivered financial results above our expectations as we remain focused on driving efficiency across the organization. Sales for the second quarter were $192.8 million, down 14% from $225.1 million in the prior year quarter. Net income was $2.2 million, or $0.06 per share, compared to net income of $4.7 million, or $0.13 per share, in the previous year. In the second quarter, adjusted EBITDA was $12.5 million, or 6.5% of sales, down from $15.9 million, or 7% of sales, in the second quarter of 2023.
Tyler DiMatteo: Please turn to slide 8. Overall, our team delivered financial results above our expectations as we remain focused on driving efficiency across the organization. Sales for the second quarter were $192.8 million, down 14% from $225.1 million in the prior year quarter. Net income was $2.2 million or six cents per share compared to net income of $4.7 million or 13 cents per share in the previous year. In the second quarter, adjusted EBITDA was $12.5 million or 6.5% of sales, down from $15.9 million or 7% of sales in the second quarter of 2023. These results include EV program spend of $5.9 million, down from $7.4 million in the prior year. Excluding these expenses, adjusted EBITDA was 9.5% of sales.
Speaker Change: Thanks, John . Please turn to slide 8. Thanks, John .
John: Overall, our team delivered financial results above our expectations as we remain focused on driving efficiency across the organization.
John: Sales for the second quarter were $192.8 million, down 14% from $225.1 million in the prior year quarter.
John: Net income was $2.2 million, or $0.06 per share, compared to net income of $4.7 million, or $0.13 per share in the previous year.
John: In the second quarter, adjusted EBITDA was $12.5 million, or 6.5% of sales, down from $15.9 million, or 7% of sales in the second quarter of 2023.
Jonathan C. Douyard: These results include an EV program spend of $5.9 million, down from $7.4 million in the prior year. Excluding these expenses, adjusted EBITDA was 9.5% of sales. Adjusted net income for the quarter was $5.3 million, while adjusted EPS was $0.16 per share.
Speaker Change: These results include EV program spend of $5.9 million, down from $7.4 million in the prior year.
Speaker Change: Excluding these expenses, adjusted EBITDA was 9.5% of sales.
Tyler DiMatteo: Adjust the net income for the quarter with $5.3 million, while adjusted EBITDA was 16 cents per share.
Speaker Change: Adjusted net income for the quarter was $5.3 million, while adjusted EPS was $0.16 per share.
Jonathan C. Douyard: Please turn to slide nine, and I'll provide an update on our segment performance. In the second quarter, FES achieved sales of $109.8 million, down 21% from a year ago. Adjusted EBITDA for the quarter was $8.4 million versus $12.5 million a year ago, primarily driven by lower volume, and adjusted even a margin of 7.6% of sales compared to 9% in the second quarter last year. However, sequentially, the FES team made significant progress, with EBITDA margins up 670 basis points versus the first quarter driven by operational improvement.
Unknown Executive: Please turn to slide 9, and I'll provide an update on our segment performance.
Please turn to slide 9 and I'll provide an update on our segment performance.
Speaker Change: In the second quarter, FES achieved sales of $109.8 million.
Speaker Change: Down 21% from a year ago.
Speaker Change: Adjusted EBITDA for the quarter was $8.4 million versus $12.5 million a year ago, primarily driven by lower volume.
Speaker Change: adjusted even a margin with 7.6% of sales compared to 9% in the second quarter last year
Speaker Change: Sequentially, the FES team made significant progress, with EBITDA margins up 670 basis points versus the first quarter driven by operational improvements.
Jonathan C. Douyard: Quarter-end backlog for FES was $295 million, down 9% versus the end of the year. While order activity was soft, and the parcel market has not yet recovered, we have seen positive signals. These include recent reports on year-over-year increases in package volume at a large parcel customer, as well as indications that walk-in van dealer inventory levels have declined and are trending towards healthier levels. Turning to FV,
Speaker Change: Quarter-end backlog for FES was 295 million dollars, down 9% versus the end of the year.
Speaker Change: While order activity was soft and the parcel market has not yet recovered.
Speaker Change: We have seen positive signals.
Speaker Change: These include recent reports on year-over-year increases in package volume at a large parcel customer, as well as indications that walk-in van dealer inventory levels have declined and are trending towards healthier levels.
Jonathan C. Douyard: The business delivered another solid quarter with strong margin performance. However, sales of $82.9 million were down 5% compared to last year, with strength in our vocational service body businesses partially offsetting motorhome software. Adjusted EBITDA was $17.5 million, or 21.2% of sales compared to $17.4 million, or 19.8% of sales in the same period last year. SV's backlog of $59.9 million was down 29% versus the end of 2023 due to lowered motorhome demand.
Speaker Change: Turning to SV, the business delivered another solid quarter with strong margin performance.
Speaker Change: Sales of $82.9 million were down 5% compared to last year, with strength in our vocational service body businesses partially offsetting motorhome softness.
Speaker Change: Adjusted EBITDA was $17.5 million or 21.2% of sales compared to $17.4 million or 19.8% of sales in the same period last year.
Speaker Change: SV backlog of $59.9 million was down 29% versus the end of 2023 due to lowered motorhome demand.
Jonathan C. Douyard: Please turn to slide 10 for a discussion on our full year outlook. We are increasing our 2024 profit outlook to the higher end of our previously stated range. Updated Adjusted EBITDA is now expected to be in the range of $45 to $50 million on sales of $800 to $850 million, supported by improved first half profit conversion and the ITU acquisition, offsetting ongoing end market softness. At the midpoint of our current Adjusted EBIT Outlook, we will deliver growth of 19% versus prior year.
Speaker Change: Please turn to slide 10 for a discussion on our full-year outlook.
Speaker Change: We are increasing our 2024 Profit Outlook to the higher end of our previously stated range.
Speaker Change: Updated Adjusted EBITDA is now expected to be in the range of $45 to $50 million on sales of $800 to $850 million supported by improved first half profit conversion, the ITU acquisition, offsetting ongoing end market softness.
Speaker Change: At the midpoint of our current Adjusted EBIT Outlook, we will deliver growth of 19% versus prior year.
Jonathan C. Douyard: Overall, we expect the acquisition of ITU to contribute approximately $25 million of sales and approximately $3 to $4 million of adjusted EBITDA for the period of August through December 2024 and have included this impact in our current outlook. The ITU impact on EPS is expected to be minimal. We remain on track to deliver our free cash flow outlook of $25 to $35 million and expect sequential improvement in the second half.
Speaker Change: Overall, we expect the acquisition of ITU to contribute approximately $25 million of sales and approximately $3 to $4 million of adjusted EBITDA for the period of August through December 2024 and have included this impact in our current outlook.
Speaker Change: The ICU impact on EPS is expected to be minimal this year.
Speaker Change: We remain on track to deliver our free cash flow outlook of $25 to $35 million and expect sequential improvement in the second half.
Jonathan C. Douyard: In closing, our team remains focused on delivering our financial commitments for the year, investing in growth, and maintaining our financial strength as we gain momentum heading into 2025. With that, I will turn it back over to John Dunn. Thank you, John.
Speaker Change: In closing, our team remains focused on delivering our financial commitments for the year, investing in growth, and maintaining our financial strength as we gain momentum heading into 2025.
John A. Dunn: Turning to slide 11, in summary, we delivered improved second quarter results as the team focused on our operating framework. We increased our 2024 profit outlook and are positioned for improved financial performance heading into next year. The team is eager to welcome ITU to the Shyft Group family and quickly drive value as we integrate the business. Blue Art Truck is moving into production, and customer momentum continues to build. Overall, it is a very exciting time for our company, and I'm confident that the Shyft team is taking the right steps to drive long-term growth and enhance shareholder value. We are now ready to take your questions. Operator, please open the line.
Speaker Change: With that, I will turn it back over to John Dunn.
John A. Dunn: Thank you, John . Turning to slide 11.
Speaker Change: In summary, we delivered improved second quarter results as the team focuses on our operating framework. We increased our 2024 profit outlook and are positioned for improved financial performance heading into next year.
Speaker Change: The team is eager to welcome ITU to the Shyft Group family and quickly drive value as we integrate the business.
Speaker Change: Our Blue Arc truck is moving into production and customer momentum continues to build.
Speaker Change: Overall, it is a very exciting time for our company and I'm confident
Speaker Change: that the Shyft team is taking the right steps to drive long-term growth and enhance shareholder value.
Speaker Change: We are now ready to take your questions. Operator, please open the line.
Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw it, please press star, then two. At this time, we will pause momentarily to assemble our.
Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw it, please press star then 2. At this time we will pause momentarily to assemble our roster.
Speaker Change: Our first question comes from Matt Koranda of Roth Capital. Please go ahead.
Unknown Analyst: Hey guys, good morning. I just wanted to cover the ITU meeting this morning. I wanted to cover the ITU acquisition in a little bit more detail, just in terms of the EBITDA multiple you mentioned is 6x. Michael Shlisky, Matthew Koranda, Gregory Lewis, Daryl Adams, Ryan Sigdahl, Jonathan Douyard
Matthew Butler Koranda: Hey guys, good morning.
Matthew Butler Koranda: I just wanted to cover the ITU acquisition in a little bit more detail. Just in terms of the EBITDA multiple you mentioned is 6X.
Matthew Butler Koranda: Those synergies and tax benefits, just any way you can help us quantify the synergies that you expect from the acquisition, how long those take to go out and get, and then the tax benefits embedded in the language there.
Jonathan C. Douyard: Yeah, I think that when you look at it. What we noted in the presentation was sales of $55 million with roughly low double-digit margins for 2023. We do expect some growth out of the business in 2024, and when you look at a full-year run rate as we move forward, you know, for full year 2025, we would expect somewhere in the neighborhood of $10 million of adjusted EBITDA coming out of the business. That does include the impact of some synergies.
Speaker Change: Yeah, I think that when you look at it.
Speaker Change: What we noted in the presentation was sales of $55 million with roughly low double-digit margins for 2023. We do expect some growth out of the business in 2024.
Speaker Change: And when you look at a full year run rate as we move forward, you know, in full year 2025, we would expect somewhere in the neighborhood of $10 million of adjusted EBITDA coming out of the business. That does include the impact of some synergies.
Jonathan C. Douyard: But and we feel like we can realize those relatively quickly. I think the company has a fantastic footprint, has fantastic brands, and has fantastic reach from a commercial perspective. And we feel, as John mentioned in his comments, our ability to put Royal Duramag utilimaster bodies through their locations and through their customers is pretty good. I think we can execute those pretty quickly. I think from a cost perspective, you know, the cost synergies we're expecting out of this transaction are really more on the procurement side of things. It may take a little bit more time to develop, but I think we're more excited about the commercial opportunities this brings us. So, hopefully, that perspective will help you.
Unknown Analyst: Yeah, that helps. Okay.
Speaker Change: But, and we feel like we can realize those relatively quickly. I think the company has a fantastic footprint, has fantastic brands and reach from a commercial perspective. And we feel, John mentioned in his comments.
John: Our ability to put Royal Duramag Utilamaster bodies through their locations and through their customers is pretty...
Speaker Change: pretty high. And so we think we can execute those pretty quickly. I think from a cost perspective, you know, this really, the cost synergies we're expecting out of this transaction are really more on the procurement side of things. It may take a little bit more time to develop, but I think we're more excited about the commercial opportunities this brings us.
Unknown Analyst: And then maybe just shifting over to the fleet vehicle side of things, you mentioned in the prepared remarks that, you know, obviously, we're potentially getting some package volume growth, a larger parcel customer, and we've got walk-in van inventory levels at dealers that may be at healthier levels. Maybe just if you could maybe take those two data points and draw for us sort of a picture of, you know, what they mean in terms of the timing of order flow?
Speaker Change: And so hopefully that adds the perspective you need.
Speaker Change: Yeah, that helps. Okay. And then maybe just shifting over to the fleet vehicle side of things, you mentioned in the prepared remarks that
Speaker Change: Obviously, we're potentially getting some package volume growth, a larger parcel customer. We've got walk-in van inventory levels at dealers that may be at healthier levels. Maybe just if you could maybe take those few data points and draw for us sort of a picture of...
Speaker Change: What does that mean in terms of the timing of order flow and when we see that pick up on the fleet vehicle side? Could that happen this year or is it still likely that it's probably more of a 2025 event? We just wanted to hear your latest thinking around sort of order flow in the fleet vehicle side of things.
Unknown Analyst: And when we see that pick up on the fleet vehicle side, you know, could that happen this year? Is it still likely that it's probably more of a 2025 event? And we just wanted to hear your latest thinking around sort of order flow on the fleet vehicle side of things.
Jonathan C. Douyard: Yeah, I think as we look at it from a commercial perspective, our team is incredibly active. You know, John has even spent the last couple weeks out there with customers, really engaging and driving volume.
Speaker Change: Yeah, I think as we look at it from a commercial perspective, our team is incredibly active. You know, John has even, you know, spent the last couple weeks out there with customers, really engaging and
Jonathan C. Douyard: I think as you look at overall parcel market recovery, it previously indicated that it could be the second half of this year. It feels like it's more early 2025 at this point. I think from our perspective, it's always been about how we deliver on the EBITDA commitment for us in 2024 while positioning the company for 25. And so our teams are incredibly active, looking for new opportunities to drive volume, but likely not recovery till 2025.
Speaker Change: driving volume. I think as you look at overall parcel market recovery, it
Speaker Change: We previously indicated that it could be second half of this year. It feels like it's more early 2025 at this point.
Speaker Change: I think from our perspective, it's always been about how do we deliver on the EBITDA commitment for us in 2024, while positioning the company for 2025. And so our teams are incredibly active.
Speaker Change: looking for new opportunities to drive volume, but likely not recovery till 2025. And I think when you look at that overall...
Jonathan C. Douyard: And I think when you look at that overall, from a 24 to 25 perspective, there are a couple catalysts that we have inside the company. We've got the acquisition of ITU being incremental year over year. We've got BlueArk transitioning into production. We would expect to see some material profit benefits from that. And then, on top of that, you've got expected end market recovery on the parcel side of the business. And so, you know, as we transition, you know, execute 2024 but really focus on positioning us for growth in 2025 and beyond.
Speaker Change: Transcribed by https://otter.ai
Speaker Change: from from a 24 to 25 perspective you know there are a couple catalysts that we have inside the company that
Speaker Change: that are real, right? We've got...
Speaker Change: The acquisition of ITU being incremental year over year. We've got BlueArk transitioning into production. We would expect to see some material profit benefits from that. And then on top of that, you've got expected end market recovery on the parcel side of the business. And so
Speaker Change: You know, as we transition, you know, execute 2024, but really focus on positioning us for growth in 2025 and beyond.
Unknown Analyst: Okay, fair enough. I'll do just one more, and then I'll leave it to others.
Speaker Change: Okay, fair enough. I'll address one more and then I'll leave it to others. On the blue arc side of things...
Speaker Change: So we have the 150 unit order with FedEx, maybe just the latest expectation setting for us on
Speaker Change: Once FedEx has those units in fleets, I guess, is there a way to think about...
Speaker Change: Timing of any follow-on orders.
Speaker Change: I'm curious to get your perspective on that. And then what does this all mean for, I guess, development costs and the cost of the program as we head into 25? I would assume those costs drop a bit from the 20 to 25 that you've guided for this year. Any perspective on that would be helpful.
Unknown Analyst: On the BlueArk side of things, we have the 150 unit order with FedEx. Maybe just the latest expectation setting for us on the ramp-up in production there. I noticed you had the pilot units go through.
Speaker Change: And to start off with, I just want to reaffirm that we will be shipping production units this year. We're ramping up production.
Unknown Analyst: Maybe when should we expect unit deliveries? I would assume it's later this calendar year. Once FedEx has those units in its fleet, I guess, is there a way to think about the timing of any follow-on orders?
Speaker Change: Right now, as we go into the end of the year, so we will have sold units out there, and we see that continuing to progress into 2025.
Unknown Analyst: Curious to get your perspective on that. And then what does this all mean for, I guess, development costs and the cost of the program as we head into 2025? I would assume those costs drop a bit from the 2025 that you've guided for this year. Any perspective on that would be helpful.
Speaker Change: You mentioned FedEx. We obviously have a nice order from FedEx. We're very excited about the interest from other customers as well. And so we're not ready to announce those yet, but we're seeing strong overall customer interest in the vehicle. And as we get vehicles on the road,
John A. Dunn: And to start off with, just want to reaffirm that we will be shipping production units this year. We're ramping up production. Right now, as we go into the end of the year, we will have sold units out there, and we see that continuing to progress into 2025. You mentioned FedEx; we obviously have a nice order from FedEx. We're very excited about the interest from other customers as well, but we're not ready to announce those yet.
John A. Dunn: But we're seeing strong overall customer interest in the vehicle, and as we get vehicles on the road, that interest will continue to grow. We really think we have the right product. So far, all of our demos are coming back with really positive feedback that this is the vehicle they've been looking for. We're focused on class four, so from a development spending point of view, we're being very constrained in that area. As we go through 2025, we're striving to get close to a breakeven business by the end of the year.
Speaker Change: That interest will continue to develop. We really think we have the right product. So far, all of our demos are coming back with really positive feedback that this is the vehicle they've been looking for.
Speaker Change: We're focused on class four, so from a development spending, we're being very constrained in that area. As we go through 2025, we're striving to get close to a break-even business by the end of the year.
Jonathan C. Douyard: And I think just to add to that, Matt, I think the initial orders will be, or initial deliveries will be, the FedEx order as well as the random area in order that we previously announced as well. But I think when you look at this from a financial perspective, you noted the 2025 million dollars. We're striving for that to be closer to break even next year. Do we get all the way there? I think we'll see how that plays out.
Speaker Change: And I think just to add to that, Matt, I think, you know, the initial orders will be, or initial deliveries will be the FedEx order as well as the Random Marian order that we previously announced as well. But I think when you look at this from a financial perspective,
Speaker Change: You noted the 2025 million dollars, you know, we're striving for that to be closer to break even next year. Do we get all the way there? I think we'll see how that plays out, but the team's done a nice job being efficient in this. And so, you know, we don't need a significant volume ramp.
Jonathan C. Douyard: But the team's done a nice job being efficient in this. And so, you know, we don't need a significant volume ramp to offset the operating costs of the business and can get closer to breakeven with even less than 500 units. And so I think, you know, a positive for us as well, when you look at these vehicles. We're not out here trying to be lost leaders. We're looking at gross margin positive, variable gross margin positive vehicles here right out of the gates, which again helps fund some of that underlying operating costs and gets us closer to that break-even number.
Speaker Change: to offset the operating costs of the business and can get closer to break-even with even, you know, call less than 500 units.
Speaker Change: I think, you know.
Speaker Change: positive for us as well when you look at these vehicles we're not out here trying to be lost leaders we're looking at gross margin positive variable gross margin positive vehicles here right out of the gates which again helps fund some of that that you know the underlying operating costs and gets us closer to that break-even number
Unknown Analyst: Okay, very clear guys, I'll leave it over.
John A. Dunn: Great, thanks Matt. Thanks Matt.
Speaker Change: Very clear, guys. I'll leave it over.
Operator: The next question comes from Mike Shlisky of D.A. Davidson. Please go ahead.
Speaker Change: Great, thanks Matt. Thanks Matt.
Speaker Change: The next question comes from Mike Shlisky of D.A. Davidson. Please go ahead.
Michael Shlisky: Yes, hi, good morning, and thanks for taking my question. First, I want to start off with a quick IPU question, as you do with the company here this month and next month. Are there any kind of one-time costs, are they related to bringing your other brands to their locations or any other one-time costs we should be thinking of that might take place in the third quarter numbers?
Michael Shlisky: Yes, hi, good morning, and thanks for taking my questions.
Michael Shlisky: First I want to start off with a quick ITU question.
Speaker Change: As you
Speaker Change: Start off with the company here this month and next month. Are there any kind of...
Speaker Change: One-time costs, either related to bringing your other brands to their locations or any other one-times we should be thinking of that might take place in the third quarter numbers.
Jonathan C. Douyard: No, I think in the, you know, we talked about three to four million dollars for the balance of the year. I think if you look at it, there will be some initial integration costs, but I wouldn't view that as overly material, and so, you know, it might not be a smooth run rate for the second half, but I think there's nothing that's that significant there. I mean, these are standalone operating companies today; we're looking to leverage the capability of their business and their team. And, you know, we're expecting to do that pretty early. And it's really how do we sort of get in and sort of accelerate value from a shift perspective on getting our products through their channels.
Speaker Change: No, I think in the, you know, we talked about three to four million dollars for the balance of the year. I think if you look at it, there will be some initial integration costs, but I wouldn't view that as...
Speaker Change: as overly material, so it might not be a smooth run rate for the second half, but I think
Speaker Change: There's nothing that's that significant there. I mean, these are standalone operating companies today We're looking to leverage the capability of their business and their team And you know, we're expecting to do that pretty early and it's really how do we sort of get in and sort of accelerate value from a shift perspective On getting our products through their channels
Michael Shlisky: I'm looking at the products that ITU puts out there; do you anticipate that ITU will open up the doors to some new or different chassis providers, like for example in the Class 7-8 size range, or are they still the same folks you've been working with all along?
Speaker Change: Got it.
Speaker Change: Chris, we're looking at the products that ITU puts out there.
Chris: open up the doors to some new or different chassis providers like for example in the class 7-8 size range or still the same folks you've been working with all along.
Jonathan C. Douyard: Yeah, I don't know if we would get up in this sort of a Class VIII, but they do make larger vehicles. I mean, if you look at what we're doing today, we're in sort of the Super Duty range. I think as you look at where ITU is, they're up in a much larger truck size and have said that it does open some capacity there. And I think not only, you know, us leveraging, us being able to sort of sell into their customer base. I think their capabilities in terms of customization design, working with the suppliers, are things that we can leverage across the company as well at our different locations.
Speaker Change: Yeah, I don't know if we would get up in this sort of a Class 8, but they do do larger vehicles. I mean, if you look at what we're doing today,
Chris: We're in sort of the.
Chris: Super Duty range. I think as you look at where ITU is, they're up in a much larger truck size and so that does open some capacity there. And I think not only
Speaker Change: You know us leveraging
Speaker Change: us being able to sort of sell into their customer base. I think they're their capabilities in terms of customization design working with the suppliers is things that we can leverage across the company as well at our different locations and so you know that's where we're quite excited about this transaction.
Michael Shlisky: That's why we're quite excited about this transaction. If we just turn to the motorhome business briefly here, that's been, we're getting to be about 12 months of a very tough industry year. Can you just send us the one you feel that might last in your numbers? And we're going to start turning to some growth from here.
Speaker Change: We just turned to the motorhome business briefly here. That's been, we're getting to be about 12 months of a very tough industry here. Can you use a sentence of when you feel that might lap in your numbers?
Speaker Change: And we're going to start turning to some growth from here.
Jonathan C. Douyard: Yeah, I think similarly, it's probably out in 2025. At this point, I mean, we did have a very strong first quarter that showed growth. I think at the time we pointed to that as maybe a bit of an anomaly. I think the second quarter was soft, and the second half of the year will be soft. Our SV backlog versus the end of the year, and that's primarily all motorhomes. And so we're not expecting that to recover here as we get into the second half of the year. It's another area where we have been focused on efficiency and protecting margins in that business and preparing for that recovery, but it's likely to be out in 2025.
Speaker Change: Yeah, I think similarly, it's probably out in 2025. At this point, I mean, we did have a very strong first quarter that showed growth. I think at the time, we pointed to that as maybe a bit of an anomaly. I think the second quarter was soft. Second half of the year will be soft. Our SV backlog, you know, is going to be a little bit higher.
Speaker Change: You can see it's down.
Speaker Change: versus the end of the year and that's primarily all motorhome and so we're not expecting that to recover here as we you know as we get into the second half of the year.
Speaker Change: It's another area where we have been focused on efficiency and protecting margins in that business and preparing for that recovery, but it's likely out in 2025.
Michael Shlisky: Okay, yeah, that about wraps up my questions. I appreciate it.
Speaker Change: Okay, yeah, that wraps up my questions. I appreciate it.
John A. Dunn: Great, Mike. Thank you.
Operator: The next question comes from Tyler DiMatteo of BTIG. Please go ahead.
Speaker Change: Great, Mike. Thank you.
Speaker Change: The next question comes from Tyler DiMatteo of BTIG. Please go ahead.
Tyler DiMatteo: Hey guys, good morning. Thanks for taking the question here. John, I wanted to come back to some of your comments.
Tyler DiMatteo: Hey guys, good morning. Thanks for taking the question here. John , I wanted to come back to some of your comments. I believe it was in the prepared remarks related to the product portfolio of independent upfitters here and how you said some of it is a little bit more complex. I mean, is it fair to assume
Tyler DiMatteo: I believe it was in the prepared remarks related to the product portfolio of independent outfitters here, and how you said some of it is a little bit more complex. I mean, is it fair to assume that, in the near term, that's kind of how you're viewing it in terms of bolstering your existing product portfolio and, then, down the line, to your point, kind of moving your own products through their channels. Can you just kind of help me understand a little bit more about the rationale in terms of what is complementary versus the cross-selling components that you also alluded to there?
Speaker Change: That in the near term, that's kind of how you're viewing it in terms of bolstering your existing product portfolio and then down the line to your point.
Speaker Change: kind of moving your own products through their channels. Can you just kind of help me understand a little bit more around the rationale in terms of what is complementary versus the cross-selling components that you also alluded to there?
John A. Dunn: And we initially highlighted as well that the Duramag Royal Service Body is going through their facilities and Utilamaster as well. So we see there's a lot of cross-selling that is going to take place and can, and it should be rather quick to be able to ramp that up. But ITU also brings just expertise and some of the different specialty vehicles that we just haven't spent a lot of time on. So if you look at their website, you'll see the cranes, the old trucks, just variations that we haven't done. And we think that's going to be very additive to our portfolio.
Speaker Change: And we initially highlighted as well that the Duramag Royal Service Body is going through their facilities and Utilamaster as well, so we see there's a lot of cross-selling that is going to take place and can, and it should be rather quick to be able to ramp that up.
Speaker Change: But ITU also brings is just expertise and some of the
Speaker Change: Different specialty vehicles that we just haven't spent a lot of time in. So, if you look at their website, you'll see the cranes, the old trucks, just variations that we haven't done. And we think that's going to be very additive to our portfolio.
Jonathan C. Douyard: I think when you look at it, Tyler, I think our strategy has been to expand geographies as well as expand product offerings. And so, you know, we've got a location to give us access to additional chassis pools and ship through locations. And it gives us that product expansion as well. I mean, we're doing crane mounts today, but they're doing crane mounts on a much larger vehicle, which, you know, given sort of growth and underlying infrastructure and those are those areas, there's a need for all of them, for all vehicle class sizes. And so we get excited about what the company can bring to us.
Speaker Change: I think when you look at it, Tyler, I think, you know, our
Speaker Change: our strategy has been on
Tyler DiMatteo: expanding geographies, as well as expanding product offerings. And so, you know, we've got additional locations, it gives us access to additional chassis pools.
Speaker Change: and ship-through locations, and it gives us that product expansion as well. I mean, we're doing crane mounts today, but they're doing crane mounts on a much larger vehicle.
Speaker Change: as an example.
Speaker Change: All in all, given growth and underlying infrastructure in those areas, there's a need for all vehicle class sizes. We're excited about what the company can bring to us.
Tyler DiMatteo: Okay, great. Yeah, that makes sense.
Speaker Change: okay great yeah that makes sense and then my follow-up here is I wanted to kind of
Tyler DiMatteo: And then my follow-up here is I wanted to kind of talk a little bit about that exact point on the national footprint. I know we've talked about this in the past and how we're looking to expand that. I guess, can we talk a little bit more about what this could mean from expanding into the Midwest and how we're looking to expand nationally and just the different geographic regions? I know we have three facilities. Can we go beyond that? I mean, what would it take to go beyond that? It seems like we're focused on the three for now.
Speaker Change: Talk a little bit about that that exact point on the the national footprint I know we've talked about this in the past and how we're looking to expand that I guess can we talk a little bit more about how what this could mean? From expanding into the Midwest and how we're looking to expand
Speaker Change: Nationally, and just the different geographic regions. I know we have the three facilities. Can we go beyond that? I mean what would it take to go beyond that? It seems like we're focused on the three for now. Just any other color there on kind of the geographic component of this?
Unknown Executive: Yes. I guess I'll go back to also refer to what we've done in Nashville as we've kind of gone national, and that was our first step. This is just continues on that journey.
John A. Dunn: Yeah, I guess I'll go back and refer to what we did in Nashville as we've kind of gone national, and that was our first step.
Speaker Change: I guess I'll go back to also refer what we've done in Nashville as we've kind of gone national and that was our first step. This is just continues on that journey gives us three more locations to continue to expand our overall portfolio. They are Midwest located so it just strengthens our presence in the Midwest which is definitely a positive where we see there's a lot of commercial activity.
John A. Dunn: This just continues on that journey gives us three more locations to continue to expand our overall portfolio. They are Midwest-based, so it just strengthens our presence in the Midwest, which is definitely a positive where we see there's a lot of commercial activity. And we will continue to leverage all of our products within our different plants, so we're better utilizing our footprint where they're not just dedicated to one business unit or brand. We're sharing those plants, going forward.
Unknown Executive: It gives us three more locations to continue to expand our overall portfolio. They are Midwest located, so it just strengthens our presence in the Midwest, which is definitely a positive where we see there's a lot of commercial activity. And we will continue to leverage all of our products within our different plants. So we're better utilizing our footprint where they're not just dedicated for one business unit or brand. We're sharing those plants going forward.
Speaker Change: And we will continue to leverage all of our products within our different plants so we're better utilizing our footprint where they're not just dedicated for one business unit or brand. We're sharing those plants.
Tyler DiMatteo: Okay, great, that makes complete sense. Thank you guys, I really appreciate the time. Here, I'll turn it back to the queue.
Unknown Executive: Okay, great. That makes complete sense.
Unknown Executive: Thank you, guys. Really appreciate the time here.
Speaker Change: going forward.
Unknown Executive: I'll turn it back to the kill. All right. Thanks, Tyler. Thanks, Alex.
Speaker Change: Okay, great, that makes complete sense. Thank you guys, really appreciate the time here. I'll turn it back to the queue.
Operator: This concludes our question and answer session. I'd like to turn the call back over to Mr. Randy Wilson for any closing remarks.
Unknown Executive: This concludes our question and answer session.
Speaker Change: All right. Thanks, Tyler. Thanks, Tyler.
Randy Wilson: I'd like to turn the call back over to Mr. Randy Wilson for any closing remarks. Thank you, operator. I'd like to thank everyone for joining today's call. The shift management team looks forward to connecting with the investment community over the coming months. And we will update you through the Shift IR website of our conference attendance. Thank you for your interest in the Shift group. And, as always, please reach out if you have any follow-up questions.
Speaker Change: This concludes our question and answer session. I'd like to turn the call back over to Mr. Randy Wilson for any closing remarks.
Randy Wilson: Thank you, Operator. I'd like to thank everyone for joining today's call. The Shyft management team looks forward to connecting with the investment community over the coming months, and we will update you through the Shyft IR website about our conference attendance. Thank you for your interest in the Shyft Group, and, as always, please reach out if you have any follow-up questions.
Randy Wilson: Thank you, Operator. I'd like to thank everyone for joining today's call. The Shyft management team looks forward to connecting with the investment community over the coming months, and we will update you through the Shyft IR website of our conference attendance.
Unknown Executive: With that, operator, please disconnect the call.
Unknown Executive: The conference is now concluded. Thank you for attending today's presentation.
Unknown Executive: You may now disconnect.