Q3 2024 The Shyft Group Inc Earnings Call

Good morning, and welcome to the sheath groups third quarter 'twenty to 'twenty four conference call and webcast all participants will be in a listen only mode until the question and answer session of the conference call.

Speaker Change: 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 sheets 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 <unk>, Chief Financial Officer.

Randy Wilson: Their prepared remarks will be followed by a question and answer session.

Randy Wilson: Before we begin please turn to slide two 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.

Randy Wilson: Primary risks that management believes could materially affect our results are identified in our forms 10-K, and 10-Q filed with the SEC.

Randy Wilson: We will be discussing non-GAAP information and performance measures, which we believe are useful in evaluating the company's operating performance.

Randy Wilson: Reconciliations of these non-GAAP measures can be found in the conference call materials.

Randy Wilson: In the initial stages of integration, we are already realizing synergies and seeing additional commercial opportunities.

Randy Wilson: Overall in the third quarter, we achieved better results and the team is engaged to execute further improvements.

Randy Wilson: Please turn to slide four.

Speaker Change: Let me take a moment to expand on our progress and highlight shifts journey over my first year as CEO.

Speaker Change: As a team we've been focused on creating the foundation to efficiently deploy resources and capital that will deliver shareholder value.

Speaker Change: This focus includes working together as one shift.

Speaker Change: Investing in our people driving efficiency in our operations, improving the quality of our products and enhancing our customer focus.

Speaker Change: Throughout the year, we highlighted key successes within our operational framework and I would like to reinforce a subset of those accomplishments.

Speaker Change: We focus on making shift a great place to work by strengthening our talent.

Speaker Change: Improving.

Speaker Change: Leadership training and ensuring safety is at the front and center of everything we do.

Speaker Change: Our mission Zero safety initiative is showing results, we're reducing injuries and eliminating risks as we progress to a zero injury workplace.

Speaker Change: We are focused on lean manufacturing and process improvements in our factories, resulting in reduced cost and improved quality.

Speaker Change: Our progress is evidenced by Ses expanding margins year over year as well as positive customer feedback on our product quality.

Speaker Change: We have greatly expanded our customer relationships, particularly at the senior levels of shift and have taken great steps in implementing tools and processes to ensure our sales force is highly effective.

Speaker Change: We've made solid progress on key strategic initiatives, including.

Speaker Change: Our focused class for Blue Arc program, which has transitioned from development into production.

Speaker Change: Term prospects of Blue arc, and we are actively engaged with customers and continuing to build out the commercial pipeline.

Speaker Change: However.

Speaker Change: We remain cautious on the rate of EV adoption as customer purchasing plans are measured in the near term.

Speaker Change: We continue to efficiently manage the program.

Speaker Change: And as we discussed in our last call we.

Speaker Change: We are striving for financial breakeven in 2025.

Speaker Change: To sum it up.

Speaker Change: This year a lot has been accomplished.

Speaker Change: We are a focus of the program on class four lowered overall spending.

Speaker Change: <unk> transitioned into production and positioned blue arc to be self sustaining in the future.

Speaker Change: Now I'll turn it over to John for a detailed review of our financial results and 2020 for outlook.

Speaker Change: Thanks, John Please turn to slide seven.

John Dunn: Overall, our team improved operational performance and delivered solid results in the third quarter, despite ongoing market softness.

John Dunn: Sales for the third quarter were $194 1 million down 4% from $201 3 million in the prior year quarter.

John Dunn: Net income was $3 1 million or <unk> <unk> per share compared to net income of $4 5 million or <unk> 13 per share in the previous year prior.

John Dunn: Prior year results included a favorable one time tax benefit benefit of $2 million, primarily related to R&D tax credits.

John Dunn: In the third quarter, adjusted EBITDA grew to $14 3 million or seven 4% of sales up from $11 million or five 5% of sales in the third quarter of 2023.

John Dunn: These results include EV program spend of $6 $1 million down from $7 6 million in the prior year.

John Dunn: Excluding these expenses adjusted EBITDA was 10, 5% of sales.

John Dunn: Adjusted net income for the quarter was $6 1 million, while adjusted EPS was <unk> 18 per share.

John Dunn: Please turn to slide eight and I'll provide an update on our segment performance.

Speaker Change: 25, and beyond with that I'll turn it back over to John.

Randy Wilson: Thank you John turning to slide 10.

John Dunn: In summary, we delivered improved operational and financial results by aligning our team with our operating framework and one shift mindset.

John Dunn: We are laser focused on delivering our 2024 profit outlook and positioning the business to be more efficient and profitable when the markets recover.

John Dunn: The team is highly engaged in improving the commercial pipeline driving the ITU integration forward and delivering blue arc trucks to customers by the end of the year.

John Dunn: Overall, it's a very exciting time for our company and I am confident that the shift team has taken the right steps to drive long term growth and enhance shareholder value.

John Dunn: We are now ready to take your questions.

John Dunn: Operator.

Speaker Change: Please open the line.

Speaker Change: Thank you we will now begin the question and answer session.

Speaker Change: Last quick question you May Press Star then one on your Touchtone phone.

Speaker Change: You are using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: Anytime you question has been addressed and you would like to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble a roaster.

Speaker Change: The first question comes from Matt Koranda of Roth Capital. Please go ahead.

Speaker Change: Hey, everybody good morning.

Matt Koranda: Maybe just wanted to start with the Blue arc.

Matt Koranda: So could you just clarify exactly when you went into production officially and then how do we think about unit capacity as we ramp production in the program and then the.

Matt Koranda: You guys said sort of financial breakeven as the golf R 25, but just could you unpack what that means exactly is that EBITDA breakeven and then what does that require in terms of unit deliveries for next year, if we kind of.

Matt Koranda: Pencil in some kind of rough gross margin for the for the units.

Matt Koranda: I think the the the.

Speaker Change: Positivity that we've seen coming out of the demonstrations and the trials that we've executed earlier this year and that we're in process of Mal leading to the LOI that John referred to.

Speaker Change: You've got 100 Hunter.

Speaker Change: 100, plus units in the Fedex order, you've got 50, plus from what John talked about we've got a number of others in the pipeline and so.

Speaker Change: We feel like the building blocks are there to get get too.

Speaker Change: To those breakeven levels.

Speaker Change: Okay fair enough.

Speaker Change: And then just on that the US wanted to see if you could maybe just unpack the moving pieces within margin there it looks like you're seeing some pretty good margin improvement despite.

Speaker Change: The revenue headwinds that you're experiencing I know you touched on it a little bit in the prepared remarks, but maybe you could just unpack sort of what's going on underneath the surface could work you're doing to improve margins in FBS and how sustainable this sort of.

Speaker Change: EBITDA margin rate is from the third quarter.

Sure.

Start off with Matt, we're really proud with what the team has done.

Our plants have really driven nice improvements as we've leaned in to drive operational efficiency. We also became more flexible. So we can run multiple products in different plants and there was a period to ramp that up and we're really seeing that yielding better performance and results. Overall, so we've taken cost out of the plan.

Speaker Change: We run the plants way more efficiently and we've made a more flexible so we can flex products accordingly, and that's driving much of that improvement.

Speaker Change: And I think to John's point that that's not something that happened overnight necessarily I think as you look at the sequential progress throughout the year youll be able to see that it was a bit of a journey, but we were happy to see the margins approach.

Speaker Change: Sure.

Speaker Change: We enter 2025 or maybe maybe comment on the orders for October for that business for the service probably isn't vocational.

Speaker Change: Yeah, what we're seeing is <unk>.

Speaker Change: Slight softening on the service bodies demands that we make.

Speaker Change: Sure.

Speaker Change: It could just be the period of time.

So we don't see it as a trend yet, but we are experience of some slight softening. It is not just us it seems to be the overall industry when we talk to.

Speaker Change: OEM as well.

Speaker Change: Yeah, and I think.

Speaker Change: Dealer and dealer inventory levels, I think slightly elevated at this point, but nothing that's necessarily alarming I think to John's point.

Speaker Change: We wouldn't say there's necessarily a trend here I think as you look at 2025, we're very confident in that business.

Speaker Change: 2025 and beyond.

Speaker Change: We've got a great position.

Speaker Change: We've expanded into Nashville, we've got plans to expand into other geographies.

Speaker Change: <unk> acquisition helps there as well so we like where we're positioned we like to share that we've been able to gain in that business.

Speaker Change: And we will continue to be out of being proactive from a commercial perspective.

Speaker Change: Okay.

Speaker Change: And then just wanted to talk just wanted to ask about blue arc as well.

Speaker Change: And then when I get too ahead of myself, but if you looked at 2006 so.

Speaker Change: You had mentioned a few hundred 25, it's really already kind of breakeven.

Speaker Change: I know, it's early but do you feel like you've got a positive EBITDA expectation for 2006 for Blue arc.

Speaker Change: As we stay close to the customers, who really understand their needs.

Speaker Change: A lot of dynamics as they tried to make this transition and certainly getting the infrastructure and charging stations installed.

Speaker Change: One of the gating aspects as well so I think the great news is that like archrock, they're leaning in and buying it and then it's setting up their whole system to be able to support those trucks going forward.

Speaker Change: Our rate of our core business those are the ideal opportunities and we're seeing really nice benefits from Itu not only from adding additional product capabilities, which we can expand into all of our facilities based on their expertise, but also they had good customer relationships, where they do have good customer relationships with people and.

Speaker Change: Customers that we had some interaction with but maybe you didn't have that strength. The same strength. So we're now able to go to these especially fleet companies and really offer this broad portfolio of products to meet their needs.

Speaker Change: It worked out fantastic.

Speaker Change: It's early stages, but we really see the benefits there.

Speaker Change: Sounds good. Thank you for thank you for the time.

Speaker Change: Thanks, Greg.

Speaker Change: Yeah.

Speaker Change: Again, if you have a question. Please press the Star then one.

Speaker Change: This concludes our question and answer session.

Speaker Change: I would like to turn the conference back over to Randy Wilson for any closing remarks.

Randy Wilson: Thank you operator, I'd like to thank everyone for joining today's call and the ship management team looks forward to connecting with the investment community over the coming months.